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Start-Up Investment with Scarce Venture Capital Support

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Author Info
Vesa Kanniainen ()
Christian Keuschnigg ()

Additional information is available for the following registered author(s):

Abstract

Start-up entrepreneurs are often commercially inexperienced. In giving managerial advice, venture capitalists can importantly enhance the success of innovative but highly risky ventures. The supply of experienced venture capitalists is not easily increased, however. When the rate of business formation accelerates, the incumbent venture capitalists tend to include more firms in their portfolio which dilutes the quality of advice, making project risks excessively high in the short-run. The supply of advisory capacity eventually becomes more elastic as new venture capitalists are attracted to the industry. Company portfolios then tend to become more focused again, the quality of advice is restored and the risk of business failure declines.

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File URL: http://www.cesifo-group.de/DocCIDL/cesifo_wp439.pdf
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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 439.

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Date of creation: 2001
Date of revision:
Handle: RePEc:ces:ceswps:_439

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Related research
Keywords: Venture capital; company portfolio; managerial advice; economic rents;

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Kanniainen, V. & Keuschnigg, C., 2000. "The Optimal Portfolio of Start-up Firms in Venture Capital Finance," University of Helsinki, Department of Economics 486, Department of Economics.
    Other versions:
  2. Schmidt, Klaus M., 1999. "Convertible Securities and Venture Capital Finance," CEPR Discussion Papers 2317, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Chan, Yuk-Shee & Siegel, Daniel R & Thakor, Anjan V, 1990. "Learning, Corporate Control and Performance Requirements in Venture Capital Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 365-81, May. [Downloadable!] (restricted)
  4. Norton, Edgar & Tenenbaum, Bernard H., 1993. "Specialization versus diversification as a venture capital investment strategy," Journal of Business Venturing, Elsevier, vol. 8(5), pages 431-442, September. [Downloadable!] (restricted)
  5. Kaplan, Steven & Strömberg, Per Johan, 2000. "Financial Contracting Theory Meets The Real World: An Empirical Analysis Of Venture Capital Contracts," CEPR Discussion Papers 2421, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Gavin C Reid & Nicholas G Terry & Julia A Smith, 1995. "Risk Management in Venture Capital Investor-Investee Relations," CRIEFF Discussion Papers 9505, Centre for Research into Industry, Enterprise, Finance and the Firm. [Downloadable!]
    Other versions:
  7. Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-89, December. [Downloadable!] (restricted)
  8. Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July. [Downloadable!] (restricted)
  9. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October. [Downloadable!] (restricted)
  10. Keuschnigg, Christian & Nielsen, Soren Bo, 2003. "Tax policy, venture capital, and entrepreneurship," Journal of Public Economics, Elsevier, vol. 87(1), pages 175-203, January. [Downloadable!] (restricted)
    Other versions:
  11. Thomas Hellmann, 1998. "The Allocation of Control Rights in Venture Capital Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 57-76, Spring. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christian Keuschnigg, 2002. "Venture Capital Backed Growth," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Cumming, D. & Johan, S., 2005. "Provincial preferences in private equity," Discussion Paper 04, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  3. Christian Keuschnigg & Soren Bo Nielsen, 2002. "Start-ups, Venture Capitalits, and the Capital Gains Tax," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Douglas Cumming & Daniel Schmidt & Uwe Walz, 2004. "Legality and Venture Governance Around the World," CFS Working Paper Series 2004/17, Center for Financial Studies. [Downloadable!]
  5. Douglas J. Cumming & Jeffrey G. MacIntosh, 2003. "Comparative Venture Capital Governance. Private versus Labour Sponsored Venture Capital Funds," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Cumming, Douglas & Johan, Sofia, 2006. "Corporate social responsibility: domestic and international private equity institutional investment," Discussion Paper 2, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  7. Paolo M. Panteghini, 2002. "On Debt Financing and Investment Timing," Finnish Economic Papers, Finnish Economic Association, vol. 15(2), pages 110-114, Autumn. [Downloadable!]
  8. Christian Keuschnigg & Soren Bo Nielsen, 2003. "Taxes and Venture Capital Support," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  9. José Martí Pellón & Marina Balboa, 2003. "Characterisation Of The Reputation Of Private Equity Managers: Evidence In Spain," Working Papers. Serie EC 2003-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  10. Andrea Schertler, 2002. "Path Dependencies in Venture Capital Markets," Kiel Working Papers 1120, Kiel Institute for the World Economy. [Downloadable!]
  11. Jyrki Ali-Yrkkö & Ari Hyytinen & Johanna Liukkonen, 2001. "Exiting Venture Capital Investments: Lessons from Finland," Discussion Papers 781, The Research Institute of the Finnish Economy. [Downloadable!]
  12. Oliver Fabel & Dominique Demougin, 2004. "The Division of Ownership in New Ventures," Working Papers of the Research Group Heterogenous Labor 04-03, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
    Other versions:
  13. John Armour & Douglas Cumming, 2004. "The Legal Road To Replicating Silicon Valley," ESRC Centre for Business Research - Working Papers wp281, ESRC Centre for Business Research. [Downloadable!]
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