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Staging of Venture Financing, Investor Opportunism and Patent Law

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  • Jochen Bigus

Abstract

Stage financing provides a real option that is valuable when facing external uncertainty. However, it may also induce investor hold‐up, if the property rights on an invention are not sufficiently protected. As a consequence, the entrepreneur may not work hard. Investor opportunism is less likely to occur, if investors' residual cash‐flow‐rights are contingent on verifiable ‘milestones’ in the previous stage. Equity‐linked financing also provides high‐powered incentives to the investor not to ‘steal the idea’ because his payoff becomes sensitive to the project value. The paper provides a new explanation for both types of contractual provisions.

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  • Jochen Bigus, 2006. "Staging of Venture Financing, Investor Opportunism and Patent Law," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7‐8), pages 939-960, September.
    • Handle: RePEc:bla:jbfnac:v:33:y:2006:i:7-8:p:939-960
    DOI: 10.1111/j.1468-5957.2006.00005.x
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    1. Cumming, Douglas & Johan, Sofia, 2007. "Regulatory harmonization and the development of private equity markets," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3218-3250, October.
    2. Lee, Yun-Chi, 2020. "Does staying private longer affect innovation of VC-backed IPOs and outcomes of VC investments?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 66(C).
    3. Nikolai Vasilevich Lyasnikov & Evgeniya Evgenevna Frolova & Andrei Alievich Mamedov & Sergei Borisovich Zinkovskii & Natalya Andreevna Voikova, 2017. "Venture Capital Financing as a Mechanism for Impelling Innovation Activity," European Research Studies Journal, European Research Studies Journal, vol. 0(2B), pages 111-122.
    4. Jens Burchardt & Ulrich Hommel & Dzidziso Samuel Kamuriwo & Carolina Billitteri, 2016. "Venture Capital Contracting in Theory and Practice: Implications for Entrepreneurship Research," Entrepreneurship Theory and Practice, , vol. 40(1), pages 25-48, January.
    5. González, Francisco, 2021. "Creditor rights and entrepreneurship: Evidence from legal changes," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 278-299.
    6. Ferreira, Ricardo M. & Pereira, Paulo J., 2021. "A dynamic model for venture capitalists’ entry–exit investment decisions," European Journal of Operational Research, Elsevier, vol. 290(2), pages 779-789.
    7. Martin Wielemaker & Eric Gedajlovic, 2011. "Governance and capabilities: Asia’s entrepreneurial performance and stock of venture forms," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 157-185, March.
    8. Douglas Cumming & Grant Fleming & Armin Schwienbacher, 2009. "Style Drift in Private Equity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5‐6), pages 645-678, June.
    9. Douglas Cumming & Grant Fleming & Armin Schwienbacher, 2009. "Style Drift in Private Equity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5‐6), pages 645-678, June.
    10. Johan, Sofia A., 2010. "Listing standards as a signal of IPO preparedness and quality," International Review of Law and Economics, Elsevier, vol. 30(2), pages 128-144, June.

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