TY  - JOUR
AU  - Fluck,Zsuzsanna
AU  - Garrison,Kedran
AU  - Myers,Stewart C.
TI  - Venture Capital Contracting and Syndication: An Experiment in Computational Corporate Finance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11624
PY  - 2005
Y2  - September 2005
UR  - http://www.nber.org/papers/w11624
L1  - http://www.nber.org/papers/w11624.pdf
N1  - Author contact info:
Zsuzsanna Fluck
Department of Finance
Eli Broad School of Business
Michigan State University
315 Eppley Center
East Lansing, MI 48824
Tel: 517-353-3019
Fax: 517-432-1080
E-Mail: fluckz@msu.edu

Stewart C. Myers
Massachusetts Institute of Technology
Sloan School of Management
E62-620
77 Massachusetts Avenue
Cambridge, MA 02142
Tel: 617/253-6696
Fax: 617/258-6855
E-Mail: scmyers@mit.edu
M2  - featured in NBER digest on 2005-09-19
AB  - This paper develops a model to study how entrepreneurs and venture-capital investors deal with moral hazard, effort provision, asymmetric information and hold-up problems. We explore several financing scenarios, including first-best, monopolistic, syndicated and fully competitive financing. We solve numerically for the entrepreneur's effort, the terms of financing, the venture capitalist's investment decision and NPV. We find significant value losses due to holdup problems and under-provision of effort that can outweigh the benefits of staged financing and investment. We show that a commitment to later-stage syndicate financing increases effort and NPV and preserves the option value of staged investment. This commitment benefits initial venture capital investors as well as the entrepreneur.
ER  -