Staging of venture financing, investor opportunism and patent law

Autor(en): Bigus, Jochen
Stichwörter: BANKS; Business & Economics; Business, Finance; CONTRACTS; convertible securities; ECONOMICS; investor opportunism; MARKETS; patent law; stage financing; venture capital
Erscheinungsdatum: 2006
Herausgeber: WILEY
Journal: JOURNAL OF BUSINESS FINANCE & ACCOUNTING
Volumen: 33
Ausgabe: 7-8
Startseite: 939
Seitenende: 960
Zusammenfassung: 
Stage financing provides a real option that is valuable when facing external uncertainty. However, it may also induce investor hold-up, if the property rights on an invention are not sufficiently protected. As a consequence, the entrepreneur may not work hard. Investor opportunism is less likely to occur, if investors' residual cash-flow-rights are contingent on verifiable `milestones' in the previous stage. Equity-linked financing also provides high-powered incentives to the investor not to `steal the idea' because his payoff becomes sensitive to the project value. The paper provides a new explanation for both types of contractual.
ISSN: 0306686X
DOI: 10.1111/j.1468-5957.2006.00005.x

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