A Soft Budget Constraint Explanation for the Venture Capital Cycle
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A Soft Budget Constraint Explanation for the Venture Capital Cycle
We explore why venture capital funds limit the amount of capital they raise and do not reinvest the proceeds. This structure is puzzling because it leads to a succession of several funds financing each new venture which multiplies the well known agency problems. We argue that an inside investor cannot provide a hard budget constraint while a less well informed outsider can. Therefore, the ventu...
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WDI. We express our gratitude to the editor, John McMillan and two anonymous referees for valuable comments and suggestions. ABSTRACT. We propose a clarification of the notion of a soft budget constraint, a concept widely used in the analysis of socialist, transitional, and market economies. Our interpretation is broad enough to embrace most existing approaches to soft budget constraint phenome...
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ژورنال
عنوان ژورنال: German Economic Review
سال: 2009
ISSN: 1468-0475,1465-6485
DOI: 10.1111/j.1468-0475.2008.00442.x