The size of venture capitalists portfolios
This paper contributes to the emerging literature on the optimal size of venture capitalists (VCs) portfolios of entrepreneurial firms. We develop a model in which a VC maximizes his expected portfolio value, net of effort costs, with respect to the number of projects he invests in and to the share of each projects profits that he leaves to entrepreneurs. The relationship between the VC and entreprneurs is characterized by double-sided moral hazard, which causes the VC to trade-off larger portfolios against lower profit shares. We analyze the relation between the VCs optimal portfolio structure and exogenous factors, such as entrepreneurs and VCs productivities, their disutilities of effort, the value of a successful project, and the required initial investment in each venture. The analysis results in ambiguous predictions for the reduced-form effects of the exogenous factors on the optimal VCs portfolio size. We demonstrate that the testing of the theory should focus on the unambiguous structural relations, while accounting for the inherent endogeneity of the profit sharing rule. We test the predictions of the model empirically using a proprietary dataset collected through a survey targeted to VC funds worldwide, and find some support for the theory.
venture capital portfolio size double-sided moral hazard
Gennaro Bernile Douglas Cumming Evgeny Lyandres
William E. Simon School of Business, University of Rochester, Rochester, NY 14627, USA School of Banking and Finance, University of New South Wales, Sydney, NSW 2052, Australia School of Management, Rice University, Houston, TX 77005, USA
国际会议
西安
英文
1-70
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）