The Paper studies the effects of tax policy on venture capital activity. Entrepreneurs pursue a single high-risk project each but have no own resources. Financiers provide equity finance. They must structure the entrepreneur’s profit share and base salary to assure their incentives for full...

This paper offers a new explanation for the prevalent use of convertible securities in venture capital finance. Convertible securities can be used to endogenously allocate cash flow rights as a function of the realized quality of the project. This property can be used to mitigate the double...

Policy makers typically interpret positive relations between venture capital investments and innovations as an evidence that venture capital investments stimulate innovation ('VC-first hypothesis'). This interpretation is, however, one-sided because there may be a reverse causality that...

Why do some start-up firms raise funds from banks and others from venture capitalists? To answer this question, I study a model in which the venture capitalist can evaluate the entrepreneur’s project more accurately than the bank but can also threaten to steal it from the entrepreneur. The...

This Paper compares the financing of new ventures in start-ups (entrepreneurship) and in established firms (intrapreneurship). Intrapreneurship allows established firms to use information on failed intrapreneurs to redeploy them into other jobs. Instead, failed entrepreneurs must seek other jobs...

Exit of venture-backed firms often takes place through sales to large incumbent firms. We show that in such an environment, venture-backed firms have a stronger incentive to develop basic innovations into commercialized innovations than incumbent firms, due to strategic product market effects....

This Paper considers the financing of a research project under uncertainty about the time of completion and the probability of eventual success. The uncertainty about future success diminishes gradually with the arrival of additional funding. The entrepreneur controls the funds and can divert...

This paper provides a theory of venture capital financing based on the complementarity between the financing and advising roles of venture capitalists. We examine the interaction between the staging of investment that characterizes young firms with a high growth potential and the double-sided...

We study how firm characteristics evolve from early business plan, to initial public offering, to public company for 49 venture capital financed companies. The average time elapsed is almost six years. We describe the financial performance, business idea, point(s) of differentiation, non-human...

We compare the characteristics of real world financial contracts to their counterparts in financial contracting theory, by studying actual contracts between venture capitalists (VCs) and entrepreneurs. (1) The distinguishing characteristic of VC financing is that they allow VCs to separately...