Dealing with Venture Capitalists: Shopping Around or Exclusive Negotiation

Casamatta, Catherine and Haritchabalet, Carole (2014) Dealing with Venture Capitalists: Shopping Around or Exclusive Negotiation. Review of Finance, 18 (5). pp. 1743-1773.

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Official URL: http://tse-fr.eu/pub/28782

Abstract

We study the fund-raising strategy of an entrepreneur when investors have private information about his project’s profitability. The entrepreneur cares about monetary profits and about the probability to obtain financing. If he contacts both venture capitalists (VCs) simultaneously, he obtains high monetary profits. If he commits to a period of exclusive negotiation with one VC, he increases the probability to obtain financing but deal terms deteriorate. The optimal negotiation strategy results from this tradeoff. We also solve for the equilibrium financial contracts and obtain implications for VCs’ portfolios and entrepreneurs’ deals.

Item Type: Article
Language: English
Date: 2014
Refereed: Yes
JEL codes: D82 - Asymmetric and Private Information
G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSM Research (Toulouse), TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:52
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:28782
URI: http://publications.ut-capitole.fr/id/eprint/16628

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