Start-up finance, monitoring, and collusion

摘要

I examine optimal financial contracts between entrepreneurs, financial intermediaries (venture capitalists), and other investors that allocate both cash flow rights and control rights to (ⅰ) motivate the venture capitalist to efficiently monitor the entrepreneur, (ⅱ) ensure that the efficient decision is made at the interim stage concerning project continuation and refinancing, and (ⅲ) deter collusion between the entrepreneur and the venture capitalist at the expense of the other investors. The combination of asymmetric information at the interim stage with the possibility of collusion yields optimal (collusion-proof) contracts that are consistent with several commonly observed characteristics of venture capital financing.