A Portfolio Approach to Venture Capital Financing

38 Pages Posted: 1 Dec 2009 Last revised: 2 May 2013

See all articles by Pascal Francois

Pascal Francois

HEC Montreal - Department of Finance

Georges Hübner

HEC Liège

Date Written: May 2, 2013


This paper studies the contracting choices between an entrepreneur and different kinds of venture capitalists in a portfolio context. The optimal contract for the entrepreneur features investor choice, share of investment, and equity dilution as a function of her bargaining power. In our portfolio approach, the choice of investor type is dictated by project size and risk, entrepreneur's risk aversion and investor's funding characteristics. A panel analysis of VC fund flows for five European countries provides strong support for the portfolio approach and establishes it as a new rationale for venture capital contracting along with other existing theories.

Keywords: Venture capital, portfolio theory, financial contracting, entrepreneur's risk aversion, cost of capital

JEL Classification: L26, G32, G24

Suggested Citation

Francois, Pascal and Hübner, Georges, A Portfolio Approach to Venture Capital Financing (May 2, 2013). Available at SSRN: https://ssrn.com/abstract=1515851 or http://dx.doi.org/10.2139/ssrn.1515851

Pascal Francois

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
514-340-7743 (Phone)
514-340-5632 (Fax)

Georges Hübner (Contact Author)

HEC Liège ( email )

Rue Louvrex 14, Bldg. N1
Liege, 4000
+32 42327428 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics