The Impact of Public Subsidies on Venture Capital Investments in Start-Up Enterprises

Andrea Schertler ()

No 1018, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The relationship between a venture capitalist and an entrepreneur is modeled to investigate the impact of public subsidies on venture capital investments in start-up enterprises. In this model, the venture capitalist only finances start-up enterprises if he has sufficient expertise to make high-risk investments in new technology profitable in terms of their expected value. It is shown that a venture capitalist who already has sufficient expertise reduces his management support in the start-up enterprise under a public subsidy. Moreover, venture capitalists who do not have sufficient expertise may finance start-up enterprises if future losses of the start-up investment are partly covered by the government.

Keywords: venture capital; double-sided moral hazard; public subsidies; start-up investments (search for similar items in EconPapers)
JEL-codes: D82 G24 G28 L14 (search for similar items in EconPapers)
Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1018

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