Промышленный лизинг Промышленный лизинг  Методички 

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equipment and software industry), they find that business-angel-backed firms obtain an average funding of U.S. $1.5 million, while venture-capital-backed firms obtain an average funding of U.S. $12 million. In addition, three-quarters of the business angelsdeals involve the acquisition ofcommon stock, while three-quarters of the venture capitalistsdeals involve the acquisition of convertible claims. Quite consistently, Proposition 5 states that when the VCs financial participation is small, she purchases common stocks, while she obtains convertible bonds or preferred stocks when her inancial contribution is large.

it is important to stress that the optimal inancial claims in each investment regime are not unique. in the model, convertible bonds do just as well as preferred stocks, and both can be used indiferently. This indeterminacy is itself an important feature of real venture capital contracts. As noted by Kaplan and Stromberg (2003) While VCs use convertible securities most frequently, they also implement the same allocation of rights using combinations of multiple classes of common stock and straight preferred stock.

What matters is how the cash-low rights allocated to each party (entrepreneur and venture capitalist) vary with the firms performance.14 On this issue, Kaplan and Stromberg (2003) find that VCs cash-flow rights tend to decrease with the irms performance, while the founders cash-low rights tend to increase with performance. This is consistent with the second regime described in Proposition 5 where the VCs investment is high, and where she is given convertible bonds, while the entrepreneur is given common stocks. in this case, the VCs cash-low rights decrease with the irms performance, while the entrepreneurs rights increase with performance.

IV. Conclusion

This paper analyzes a double-moral hazard problem whereby two agents must exert effort to improve the profitability of a venture. Because of incentive considerations, the most eicient agent prefers not to hire the less eicient one if the latter does not invest money into the project. in the venture capital setting, this implies that entrepreneurs do not want to rely on consultant advising when their own expertise is key to the success of the venture. To enhance the profitability of their project, entrepreneurs must ask advisors to invest inancially into the project, in the spirit of venture capital inancing and advising. This determines an optimal amount of outside inancing. Traditional corporate inance theory emphasizes the agency costs associated with external inancing, while this model highlights the reduction in agency costs owing to external inancing. The inan-cial claims purchased by venture capitalists also respond to incentive considerations. Common stocks provide high-powered incentives to venture capitalists. in contrast, convertible bonds are given to the venture capitalists when strong incentives must be provided to entrepreneurs.

14 Thus the present analysis determines the optimal allocation of shares between managers and investors according to performance. See Fluck (1999) for an analysis of the dynamics of the allocation of shares between managers and investors.

The analysis of the model yields the following empirical predictions.

First, there should be a relationship between the level of the venture capitalists financial participation and the type of financial claim that is issued by the firm. Common stocks should be associated with small financial investment, while convertible bonds should be associated with large inancial investment. This is consistent with the empirical findings of Fenn, Liang, and Prowse (1998) and Kaplan and Stromberg (2003).

Second, the model predicts that in very innovative lines of business venture capital-backed firms should be more profitable than non-VC-backed firms: For those projects, only VCs can provide business advice to improve the firms proitability. This suggests that a variable indicating the presence of venture capital should be included in the regression explaining the profitability of very innovative irms.

Third, consultant services should be more frequent in those start-ups where the entrepreneurs competencies are not unique or crucial. Less innovative irms should rely more on consultant advising. To test this hypothesis, one could identify the product market strategies of different start-ups, in the spirit of the analysis of Hellmann and Puri (2000), and compare the frequency of use of consultant services between groups of diferent innovativeness.

Fourth, there should be a positive correlation between the level of entrepreneurial inancial investment (expressed as a percentage of total investment) and the proitability of start-up irms. This efect should be stronger among groups of less profitable start-ups. In gathering firm-specific data on financing patterns of start-ups, one could add the level of entrepreneurial investment in the explanatory variables of the irms proitability.

Proof of Lemma 1: The levels of effort chosen by the entrepreneur and the investor, given by the FOCs of ICE and ICVC, are:


e = max


a max


Under assumption (A.1),

iRM < 1, which implies:

We next show that when e = 0, the entrepreneur never chooses auE and aEd such


b (aERu - aERd)<0. (A4)

When e = 0, a must be strictly positive (otherwise the project cannot be implemented); hence it is given by

a = 1 (auARu - aARd). (A5)

The constraints (PC)vC and (PC)f are binding. If they were not, increasing AF and AVC would increase the entrepreneurs expected income without affecting the advisors incentives. Replacing a, AF, and AVC by their value, the program de-ined in Section ii becomes

max (Ru - Rd)1-(aARu - aARd)- (auARu - adARd)2 + Rd - I (A6)

s.t. aERd - a\Ru > 0, (A7)

auERu + auARu < Ru, (A8)

adERd + adARd < Rd (A9)

Suppose equation (A7) is binding. Solving the program gives

auARu - adARd = Ru - Rd. (A10)

Given that e = 0, effort a is equal to 1(Ru - Rd), which corresponds to its first-best value.

Suppose now that equation (A7) is not binding, that is aERd - aERu = e, e > 0. It is easy to see that the solution described in equation (A10) can still be attained. This is because when aERd>aERu, the share of outcome given to the financier can adjust to induce the irst-best level of efort a.15 The value of the objective function is then

- [Ru - Rd]2 + Rd - I. (A11)

Hence, when e = 0, it is eicient for the entrepreneur to choose uaE and aEd such that equation (A7) is binding. With no loss of generality, equation (A1) can

15 Note that this would not be true anymore if there was no pure financier. In that case, setting aERd = aERu when e = 0 would be the only way to induce the first best level of effort a. Equation (A7) would then have to be binding.

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