Equity Financing of the Entrepreneurial Firm

The Gramm-Leach-Bliley Act of 1999 provides thatfinancial holding companies can invest in private equity funds that supplyventure capital to entrepreneurial firms.In this study, the equityfinancing of the entrepreneurial firm is analyzed in relationship to thenon-verifiable cash flow of the firm.Three organizational forms--i.e.,limited partnership, private corporation, andpublic corporation--areinvestigated, noting that venture capital is available to limited partnershipsand to private corporations, while public offerings are only available topublic corporations. The literature review examines various studies associated with problems infinancing entrepreneurships.The limited partnerships and corporations(private and public) are discussed and analyzed based on previously compileddata.The analysis shows that the limited partnership and publiccorporation are equal in regard to an outside investor's bargaining power,whereas private corporations provide outside investors with the most ex-postbargaining power.This study reaffirms the importance of venture capitalfinancing for corporations. (AKP)