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Venture capital and career concerns

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  • Crain, Nicholas G.

Abstract

This paper finds evidence that the market for follow-on capital discourages risk taking by venture capital fund managers. The amount of follow-on capital raised by venture capitalists is concave with respect to current fund performance. In addition, managers with less consistent performance are slower, and less likely, to raise a follow-on fund. Venture capitalists adjust their investment strategy to balance fundraising incentives against the incentive to pursue risk provided by carried interest. The findings are consistent with models of career concerns, where an agent's compensation is designed to (partially) offset the implicit incentives created by future employment opportunities.

Suggested Citation

  • Crain, Nicholas G., 2018. "Venture capital and career concerns," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 168-185.
    • Handle: RePEc:eee:corfin:v:49:y:2018:i:c:p:168-185
    DOI: 10.1016/j.jcorpfin.2017.12.004
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    Cited by:

    1. Wang, Qing (Sophie) & Lai, Shaojie & Anderson, Hamish D., 2021. "VC fund preferences and exits of individual investors," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
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    3. Ben Amor, Salma & Kooli, Maher, 2024. "Does overconfidence affect venture capital firms’ investment?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).
    4. Jelic, Ranko & Zhou, Dan & Ahmad, Wasim, 2021. "Do stressed PE firms misbehave?," Journal of Corporate Finance, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Venture capital; Career concerns; Agency problems; Risk shifting;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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