Erschienen in:EFA 2004 Maastricht Meetings Paper ; No. 4637
Umfang:
1 Online-Ressource (41 p)
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Nicht zu entscheiden
DOI:
10.2139/ssrn.567647
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Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 15, 2006 erstellt
Beschreibung:
This paper focuses on the dual role of venture capitalists as both advisors and monitors in entrepreneurial firms. It proposes a distinction between these two tasks based on the principle that advising is congruent while monitoring is dissonant with respect to entrepreneurial preferences. The analysis shows that despite the resulting conflict of incentives between the two tasks, in equilibrium, an entrepreneur with substantial capital needs will enter into a contract with a multitask financier rather than with an advisor and a monitor separately. This provides an explanation for the existence of venture capital, a form of financial intermediation, in which the tasks of advising and monitoring are fulfilled by a sole financier. Furthermore, consistent with observed features of venture capital contracting, the model predicts the prevalent use of convertible securities together with control rights in the financing of capital-constrained start-up entrepreneurs