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Cannibalization & Incentives in Venture Financing Author info | Abstract | Publisher info | Download info | Related research | Statistics Stefan ARPING
This paper considers the effects of strategic substitutabilities on performance and incentives in venture capital financing. The analysis points to a subtle link between two pivotal roles of venture capitalists: (i) monitoring ventures and setting performance incentives, and (ii) coordinating and shaping the product market strategies of ventures operating in similar product spaces. When strategic substitutabilities are strong, the VC's role is to soften potentially too aggressive product market strategies. In contrast, small strategic substitutabilities can lead to more aggressive performance incentives. This is because they enhance the VC's commitment to weed out losers, which strengthens entrepreneurial incentives and results in overall efficiency gains. We discuss our findings in light of case study evidence from the venture capital industry.
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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number
02.07.
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Length: 31 pages
Date of creation: Mar 2002Date of revision:
May 2002Handle: RePEc:lau:crdeep:02.07Contact details of provider: Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne Phone: ++41 21 692.33.64 Fax: ++41 21 692.33.65 Web page: http://www.hec.unil.ch/deep/publications-english/e-cahiers.htm
For technical questions regarding this item, or to correct its listing, contact: (Claudine Delapierre Saudan).
Keywords: venture capital ; strategic substitutabilities ; incentives ; Other versions of this item:
Find related papers by JEL classification: G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage G3 - Financial Economics - - Corporate Finance and Governance L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior L4 - Industrial Organization - - Antitrust Issues and Policies
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