Title: Financing and product market competition: Optimal contracts with venture capitalists
Abstract: We consider the provision of venture capital in a dynamic agency model. In particular, we focus on the interaction between venture capital financing and product market competition: A young firm with a risky innovation project attempts to enter a market where it faces two periods of price competition with an incumbent firm. Since the young firm is wealth-constrained, it seeks equity financing from a venture capital company. The allocation of funds and learning about the project's quality are both subject to moral hazard. We analyze the provision of capital under (i) short-term and (ii) long-term contracting, and compare the results.
Publication Year: 2000
Publication Date: 2000-01-01
Language: en
Type: preprint
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Cited By Count: 1
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