[Working Paper] How and when do Entrepreneurs seek for Venture Capital financing?

Building on Dixit & Pindyck (1994) model for determining investment timing, this paper develops a real options framework to understand how and when Entrepeneurs seek for Venture Capital financing. The setting comprises an established start-up firm which is deciding between a small and a large expansion project. The Entrepeneur will be seeking Venture Capital financing to carry a larger expansion whether this outprofits the smaller expansion, even at the expense of a lower equity stake. An extension has been designed assuming that the expansion expenditures are divisible and that post-expansion profit is a function of the overall capital expenditure. 1 Faculdade de Economia da Universidade do Porto. Rua Dr. Roberto Frias, 4200-464 Porto (Portugal). E-mail: [email protected] Phone: +351 225 571 225 Fax: +351 225 505 050 Tavares, Pereira & Brandão (2012), “How and when do Entrepreneurs seek for Venture Capital financing?” [Working Paper]