Screening and advising by a venture capitalist with a time constraint

Martin Dietz

No 2003/48, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: This paper proposes an intertemporal model of venture capital investment with screening and advising where the venture capitalist's time endowment is the scarce input factor. Screening improves the selection of firms receiving finance, advising allows firms to develop a marketable product, both have a variable intensity. In our setup, optimal linear contracts solves the moral hazard problem. Screening however asks for an entrepreneur wage and does not allow for upfront payments which would cause severe adverse selection. Project characteristics have implications for screening and advising intensity and the distribution of profits. Finally, we develop a formal version of the 'venture capital cycle' by extending the basic setup to a simple model of venture capital supply and demand.

Keywords: Venture capital; market structure; product development (search for similar items in EconPapers)
JEL-codes: D82 G24 L19 (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200348

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