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Funding new ventures: some strategies for raising early finance

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  • Rajeev Goel
  • Iftekhar Hasan

Abstract

This research provides formal insights into how new firms facing a number of potential investors might effectively raise funds at early stages, especially when a firm is small and/or a marketable product has not yet been developed. In the principal-agent framework, the firm can be seen as the principal, maximizing its revenues, and the potential investors aim to minimize payment for a share in ownership. The firm auctions incentive contracts to investors to secure seed money, while parting with a (minority) share of ownership. The effects of increased competition among investors on project size (research spending) and contractual design (incentive, fixed-price or cost-plus contracts) are examined and policy implications discussed.

Suggested Citation

  • Rajeev Goel & Iftekhar Hasan, 2004. "Funding new ventures: some strategies for raising early finance," Applied Financial Economics, Taylor & Francis Journals, vol. 14(11), pages 773-778.
    • Handle: RePEc:taf:apfiec:v:14:y:2004:i:11:p:773-778
    DOI: 10.1080/096031004200019680
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    References listed on IDEAS

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    1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    2. Kamien,Morton I. & Schwartz,Nancy L., 1982. "Market Structure and Innovation," Cambridge Books, Cambridge University Press, number 9780521293853, December.
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    Cited by:

    1. Andrea Schertler, 2005. "European venture capital markets: fund providers and investment characteristics," Applied Financial Economics, Taylor & Francis Journals, vol. 15(6), pages 367-380.
    2. Dirk Dohse & Rajeev K. Goel & Devrim Göktepe‐Hultén, 2021. "Paths academic scientists take to entrepreneurship: Disaggregating direct and indirect influences," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1740-1753, October.
    3. Rajeev Goel & Iftekhar Hasan, 2005. "An IT professional’s dilemma: be an entrepreneur or a consultant?," Netnomics, Springer, vol. 7(1), pages 17-25, April.
    4. Long Wu & Lei Xu, 2018. "Grandstanding and New Stock Speculation: Evidence from Private Venture Capitals in China," Australian Economic Papers, Wiley Blackwell, vol. 57(3), pages 363-375, September.

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