When and Why Do Venture Capital-Backed Companies Obtain Venture Lending?
Posted: 15 Nov 2017
Date Written: November 13, 2017
I model the decision of an informed early-stage venture capital (VC) investor that considers involving an uninformed VC or venture lending (VL) investor to finance the late stage. Early-stage VC investors that own high-quality value companies tend to signal their quality and they frequently turn to VL investors. Early-stage VC investors prefer VC if the proportion of high-quality companies in the population is high, if their companies have a high upside potential, if they can benefit from the value that late-stage VC investors add, or if uncertainty is high. I find empirical evidence consistent with these predictions.
Keywords: venture lending, venture capital, entrepreneurial companies, asymmetric information, stage financing
JEL Classification: G24, G32
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