Venture Capital Contracting and Syndication: An Experiment in Computational Corporate Finance

Zsuzsanna Fluck, Kedran Garrison and Stewart C. Myers

No 11624, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a model to study how entrepreneurs and venture-capital investors deal with moral hazard, effort provision, asymmetric information and hold-up problems. We explore several financing scenarios, including first-best, monopolistic, syndicated and fully competitive financing. We solve numerically for the entrepreneur's effort, the terms of financing, the venture capitalist's investment decision and NPV. We find significant value losses due to holdup problems and under-provision of effort that can outweigh the benefits of staged financing and investment. We show that a commitment to later-stage syndicate financing increases effort and NPV and preserves the option value of staged investment. This commitment benefits initial venture capital investors as well as the entrepreneur.

JEL-codes: G24 G32 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-cmp, nep-ent and nep-fin
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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