scholarly journals Banks Versus Venture Capital When the Venture Capitalist Values Private Benefits of Control

2010 ◽  
Author(s):  
Mehmet Barlo ◽  
Eren Inci
Keyword(s):  
Venture Capital ◽  
Venture Capitalist ◽  
Private Benefits ◽  
Private Benefits Of Control

scholarly journals Replacing Management or Not: Contract Renegotiation to Prevent Double Moral Hazards of Venture Capital Investments

2021 ◽  
Vol 2021 ◽  
pp. 1-10
Author(s):  
Linsen Yin ◽  
Ane Pan
Keyword(s):  
Venture Capital ◽  
Strategic Behavior ◽  
Status Quo ◽  
Work Team ◽  
Venture Capitalist ◽  
Private Benefits ◽  
The Status ◽  
Venture Enterprise ◽  
Behavior Choice ◽  
Management Work

During the venture capital development, replacing the management work team or keeping up the status quo is a key strategy choice for venture capitalist and venture entrepreneur about the long-term development of enterprise and the control right transferring. In fact, the contract designing focuses on the distribution of cash flow to encourage both efforts in order to avoid double moral hazard, and the strategy behavior has similar effects according to the developing condition of venture enterprise. In this paper, we consider both contract design and strategic behavior, regarding this strategic behavior choice as a motivator and combining strategic behavior with financial instrument options. The main innovation is to redesign and optimize the contract based on dynamic perspective, which will analyze initial contract designed to motivate both sides’ effort if a venture enterprise is in good state, and then renegotiate whether to replace the management work team or keep up the status quo according to the venture enterprise’s development state in the process of venture investment cooperation. The paper also puts forward some conclusions: joint effort of both sides can be motivated through strategic behavior choice and then lead to increasing the overall value of the venture enterprise; after the venture enterprise has gained private benefits in the early stage, the venture capitalist needs to make appropriate assignments and demisability in benefits to remotivate the venture enterprise’s efforts, aiming to further balance venture enterprise’s private benefits and the earnings redistributed by venture capitalist.

scholarly journals A Soft Budget Constraint Explanation for the Venture Capital Cycle

2009 ◽  
Vol 10 (1) ◽  
pp. 71-90 ◽  
Author(s):  
Georg Gebhardt
Keyword(s):  
Venture Capital ◽  
Agency Problems ◽  
Probability Of Failure ◽  
Budget Constraint ◽  
New Venture ◽  
Venture Capitalist ◽  
Soft Budget Constraint ◽  
Private Benefits ◽  
Ex Ante ◽  
Constraint Problem

Abstract We explore why venture capital funds limit the amount of capital they raise and do not reinvest the proceeds. This structure is puzzling because it leads to a succession of several funds financing each new venture, which multiplies the well-known agency problems. We argue that an inside investor cannot provide a hard budget constraint while a less informed outsider can. Therefore, the venture capitalist delegates the continuation decision to the outsider by ex ante restricting the amount of capital he has under management. The soft budget constraint problem becomes the more important the higher the entrepreneur’s private benefits are and the higher the probability of failure of a project is.

Opening the Black Box of the Venture Capital-Entrepreneur Relationship

2018 ◽  
pp. 110-127
Author(s):  
Olimpia Meglio ◽  
Matteo Rossi ◽  
Arturo Capasso
Keyword(s):  
Venture Capital ◽  
Strategic Management ◽  
Field Study ◽  
Real Time ◽  
Learning Experience ◽  
Black Box ◽  
Venture Capitalist ◽  
Present Evidence ◽  
The Relationship ◽  
Over Time

This chapter aims to explore in-depth the relationship between the venture capitalist and the venture-backed company and account for how this relationship unfolds over time. To achieve this, the authors present evidence from three process case studies. The field study presented in this chapter is partly retrospective and partly in real time and is based on two rounds of focused interviews with the entrepreneurs and the venture capitalist. The findings show that several factors play a role, with confidence in the VC (Venture Capital) being essential to beginning the relationship and trust between the parties being essential to continuing it successfully. This relationship is a learning experience for both parties: while the entrepreneur becomes acquainted with the tools for daily, as well as strategic management, the venture capitalist learns how to effectively scout new attractive business ideas.

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