Venture capital and career concerns

Venture capital and career concerns This paper finds evidence that the market for follow-on capital discourages risk taking by venture capital fund managers. The amount of follow-on capital raised by venture capitalists is concave with respect to current fund performance. In addition, managers with less consistent performance are slower, and less likely, to raise a follow-on fund. Venture capitalists adjust their investment strategy to balance fundraising incentives against the incentive to pursue risk provided by carried interest. The findings are consistent with models of career concerns, where an agent's compensation is designed to (partially) offset the implicit incentives created by future employment opportunities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Corporate Finance Elsevier

Venture capital and career concerns

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Publisher
Elsevier
Copyright
Copyright © 2017 Elsevier B.V.
ISSN
0929-1199
D.O.I.
10.1016/j.jcorpfin.2017.12.004
Publisher site
See Article on Publisher Site

Abstract

This paper finds evidence that the market for follow-on capital discourages risk taking by venture capital fund managers. The amount of follow-on capital raised by venture capitalists is concave with respect to current fund performance. In addition, managers with less consistent performance are slower, and less likely, to raise a follow-on fund. Venture capitalists adjust their investment strategy to balance fundraising incentives against the incentive to pursue risk provided by carried interest. The findings are consistent with models of career concerns, where an agent's compensation is designed to (partially) offset the implicit incentives created by future employment opportunities.

Journal

Journal of Corporate FinanceElsevier

Published: Apr 1, 2018

References

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