Career Concerns in Venture Capital Markets Between Different Industries

In a model with three players (Investor, Venture Capitalist, Entrepreneur) we show that career concerns play an important role. The expanded structure captures dynamics that the current literature has failed to explain both theoretically and empirically. We take into account the different characteristics of the industries and manage to show that Venture Capitalists will act in favor of their career prospects. The Investors will need to offer a sufficiently high share of profits in order to avoid this behavior by the Venture Capitalists. The different characteristics of the industries generate issues of moral hazard. The optimal strategies in equilibrium are fully characterized allowing a simultaneous explanation of findings from different papers