Funding New Ventures: Some Strategies for Raising Early Finance

Applied Financial Economics, vol. 14, no. 11, pp. 773-778

Posted: 6 Apr 2016

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Date Written: 2004

Abstract

This research provides formal insights into how new firms facing a number of potential investors might effectively raise funds at early stages, especially when a firm is small and/or a marketable product has not yet been developed. In the principal-agent framework, the firm can be seen as the principal, maximizing its revenues, and the potential investors aim to minimize payment for a share in ownership. The firm auctions incentive contracts to investors to secure seed money, while parting with a (minority) share of ownership. The effects of increased competition among investors on project size (research spending) and contractual design (incentive, fixed-price or cost-plus contracts) are examined and policy implications discussed.

Suggested Citation

Goel, Rajeev K. and Hasan, Iftekhar, Funding New Ventures: Some Strategies for Raising Early Finance (2004). Applied Financial Economics, vol. 14, no. 11, pp. 773-778. Available at SSRN: https://ssrn.com/abstract=2758977

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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