The Optimal Portfolio of Start-Up Firms in Venture Capital Finance
11 Pages Posted: 26 Jan 2001
Date Written: December 2000
A venture capitalist faces a trade-off between the extent of managerial advice allocated to each start-up and the total number of firms advised. Diminishing returns to advice per firm call for a larger portfolio. As advice gets diluted, further expansion of the portfolio eventually becomes unprofitable.
Keywords: Venture capital finance, double-sided moral hazard, company portfolio
JEL Classification: D82, G24, G32, L9
Suggested Citation: Suggested Citation