Bank versus venture capital

Masako Ueda

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Why do some start-up firms raise funds from banks and others from venture capitalists? To answer this question, I develop a model of start-up financing when intellectual property rights are not well protected. The upside of VC financing is that the VC understands the business better than a bank. The downside, however, is that the VC may steal the idea and use it himself. The results of the model are consistent with empirical regularities on start-up financing. The model implies that the characteristics of the firms financing from venture capitalists are low-collateral, high-growth and high-profitability. The model also suggests that the tighter protection of intellectual property rights contributes to the recent dramatic growth of the US venture capital industry.

Keywords: Collateral; intellectual-property; venture-capital (search for similar items in EconPapers)
JEL-codes: G21 G24 K11 (search for similar items in EconPapers)
Date: 2000-11
References: Add references at CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Banks versus Venture Capital (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:522

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