Les Cahiers de Recherche - HEC Paris
Indulgent angels or stingy venture capitalists? The entrepreneurs' choice
Abstract: This paper studies entrepreneurs' choice of investors, who
must provide financial capital and effort for projects with externalities.
Venture capitalists (VCs) and individual investors (angels) compete to
finance the projects. VCs seek to invest into a portfolio of projects,
while angels have more slack in how much they invest into one project. In
the presence of externalities between projects, VCs can potentially
increase the total value of their investment portfolio through better
coordination of investment, while some angels behave indulgently and give
more financial investment than necessary, earning zero profits in
equilibrium. Surprisingly, externalities do not give VCs as much of an
advantage as one would expect. Quite often VCs lose out to angels even when
this means that some projects will not receive an optimal amount of effort.
In the projects they invest in, VCs always make strictly positive profits
despite the competition.
Keywords: investment choice; venture capitalist; angel; project financing; (follow links to similar papers)
JEL-Codes: G24; G32; (follow links to similar papers)
36 pages, November 1, 2002
Before downloading any of the electronic versions below
you should read our statement on
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
Questions (including download problems) about the papers in this series should be directed to Sandra Dupouy ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Design Joakim Ekebom