Profit Distribution and Compensation Structures in Publicly and Privately Funded Hybrid Venture Capital Funds

Posted: 29 Aug 2008

See all articles by Mikko Jääskeläinen

Mikko Jääskeläinen

Aalto University

Markku V. J. Maula

Aalto University, Department of Industrial Engineering and Management

Gordon C. Murray

University of Exeter Business School

Date Written: September 2007

Abstract

Policy makers have become increasingly concerned at the lack of risk capital available to new and early-stage entrepreneurial ventures. As a public response to a perceived market failure, several governments have set up programs to channel equity finance to capital constrained but high potential, young enterprises. Critically, government support is often directed through the agency of private venture capital funds. We examine the profit distribution and compensation structures used in these hybrid public/private funds. We appraise government policy makers' ability to use these structures to improve the expected returns in market failure areas in order to attract private sector investors and professional managers to participate in these funds. The results derived from our simulation study suggest that such asymmetric profit sharing models can only resolve relatively modest market failures unless the programs also manage to attract highly competent investors who are able to produce above average gross returns in market failure areas.

Keywords: Venture capital, distribution structures, compensation structures, hybrid funds, enterprise policy

JEL Classification: G24, G28, G35, M13

Suggested Citation

Jääskeläinen, Mikko and Maula, Markku V. J. and Murray, Gordon C., Profit Distribution and Compensation Structures in Publicly and Privately Funded Hybrid Venture Capital Funds (September 2007). Research Policy, Vol. 36, No. 7, 2007, Available at SSRN: https://ssrn.com/abstract=1246506

Mikko Jääskeläinen (Contact Author)

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Markku V. J. Maula

Aalto University, Department of Industrial Engineering and Management ( email )

PO Box 15500
FI-00076 AALTO
Espoo
Finland

HOME PAGE: http://users.aalto.fi/mmaula/

Gordon C. Murray

University of Exeter Business School ( email )

Streatham Court
Rennes Drive
Exeter EX4 4PU
United Kingdom
+44 777 522 0857 (Phone)

HOME PAGE: http://business-school.exeter.ac.uk/staff/profile.php?id=34

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
903
PlumX Metrics