Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5088385 | Journal of Banking & Finance | 2016 | 11 Pages |
Abstract
We analyze an entrepreneur's choice between angel and venture capital (VC) financing in a competitive investment market, where the entrepreneur seeks to maintain his ownership share as well as equity value. The key to our analysis is the idea that a negative signal is inferred by the market if an inside investor chooses not to follow on a subsequent investment. We first show that when ventures are ex-ante identical, entrepreneurs retain higher ownership shares by financing with angel investors who commit to not participate in a future round. When entrepreneurs are ex-ante heterogeneous, there is a separating equilibrium where entrepreneurs with higher (lower) likelihoods of success choose VC financing (angel financing) in the first round.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Jin-Hyuk Kim, Liad Wagman,