Zsuzsanna Fluck

Department of Finance
Eli Broad School of Business
Michigan State University
315 Eppley Center
East Lansing, MI 48824
Tel: 517-353-3019
Fax: 517-432-1080

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Michigan State University

NBER Working Papers and Publications

September 2005Venture Capital Contracting and Syndication: An Experiment in Computational Corporate Finance
with Kedran Garrison, Stewart C. Myers: w11624
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...

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