Kiel Working Papers, Kiel Institute for World Economics
No 1018:
The Impact of Public Subsidies on Venture Capital Investments in Start-Up Enterprises
Andrea Schertler
Abstract: The relationship between a venture capitalist and an
entrepreneur is modeled to investigate the impact of public subsidies on
venture capital investments in start-up enterprises. In this model, the
venture capitalist only finances start-up enterprises if he has sufficient
expertise to make high-risk investments in new technology profitable in
terms of their expected value. It is shown that a venture capitalist who
already has sufficient expertise reduces his management support in the
start-up enterprise under a public subsidy. Moreover, venture capitalists
who do not have sufficient expertise may finance start-up enterprises if
future losses of the start-up investment are partly covered by the
government.
Keywords: venture capital, double-sided moral hazard, public subsidies, start-up investments; (follow links to similar papers)
JEL-Codes: D82; G24; G28; L14; (follow links to similar papers)
37 pages, December 2000
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