Self-Selection and Advice in Venture Capital Finance

Christian Keuschnigg and Søren Nielsen

University of St. Gallen Department of Economics working paper series 2006 from Department of Economics, University of St. Gallen

Abstract: In financing start-up firms, venture capitalists carefully select among alternative projects, design incentive compatible financial contracts and support portfolio companies with value enhancing managerial advice. This paper considers how venture capitalists can induce self-selection among entrepreneurial firms with different qualities and growth potential by designing appropriate contracts and offering managerial support. We study the efficiency of the competitive market equilibrium with respect to the level and quality of entrepreneurship and the level of effort by entrepreneurs and venture capitalists. We also provide comparative static results with respect to basic preference and technology parameters.

Keywords: Venture capital; entrepreneurship; self-selection; moral hazard (search for similar items in EconPapers)
JEL-codes: D82 G24 M13 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2006-03
New Economics Papers: this item is included in nep-ent, nep-fin, nep-fmk and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://ux-tauri.unisg.ch/RePEc/usg/dp2006/DP06_Keu.pdf (application/pdf)

Related works:
Working Paper: Self-Selection and Advise in Venture Capital Finance (2008)
Working Paper: Self-Selection and Advice in Venture Capital Finance (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:dp2006:2006-06

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