Entrepreneurial finance: Banks versus venture capital

Winton, Andrew; Yerramilli, Vijay

doi:10.1016/j.jfineco.2007.05.004

Cited by 149 publications

(79 citation statements)

References 22 publications

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“…This assumption could be endogenized by assuming that active investors, such as venture capitalists, have marginally higher funding costs (e.g., Winton and Yerramilli, 2006). Likewise, active investors could be more scarce than passive investors, allowing them to require a higher rate of return.…”

Section: Discussionmentioning

confidence: 99%

“…Finally, it is related to models studying the role of corporate venturing (Hellmann, 2002) and strategic alliances (Mathews, 2006) in a competitive context. 7 Our model is also related to Ueda (2004) and Winton and Yerramilli (2006), both of which examine the endogenous choice between active and passive investors. In Ueda's model, VCs are better at screening projects ex ante, but they are also more likely to steal the entrepreneur's idea.…”

Section: Introductionmentioning

confidence: 99%

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Early-stage financing and firm growth in new industries

Inderst

Müller

2009

Journal of Financial Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in JEL Classifications: G24; G32Keywords: Venture capital; dynamic investment; product market competition * We thank Tony Bernardo, Marco DaRin, and seminar audiences at NYU and UCLA for helpful comments and suggestions. We are especially grateful to an anonymous referee, whose insightful comments substantially improved the paper.

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Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Early-stage financing and firm growth in new industries

Inderst

Müller

2009

Journal of Financial Economics

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“…Their practices reveal the use of capital rationing through staged financing (venture capital firm-equity capital) and credit limits (banks -debt capital) as a means of controlling the investee's ability to continue and grow their business. Although banks' monitoring and control rights are less intensive, they monitor for covenant violations, deteriorating performance, or worsening collateral quality that might jeopardise their loan (Winton & Yerramilli, 2008). Landier (2003) notes that entrepreneurs choose safe projects backed by bank debt and low monitoring if the stigma associated with failure is high, and risky projects backed by venture capital finance and high levels of monitoring if the stigma associated with failure is low.…”

Section: Investment and Financial Behaviourmentioning

confidence: 99%

“…Angel investors and angel networks (a handful of investors pooling their funds) are wealthy individuals who provide the money for their investments out of their own pockets (Nieman, 2006). Entrepreneurs are presented with an opportunity to negotiate with angel investors and arrive at personalised investment packages that benefit both parties (Winton & Yerramilli, 2008). Chemmanur and Chen (2006) suggest that angel investors tend to enjoy a more informal and relational partnership with their entrepreneurs, based on trust and empathy.…”

Section: Informal Venture Capital and Business Angelsmentioning

confidence: 99%

The study of venture capital finance and investment behaviour in small and medium-sized enterprises

Mbhele

2012

SAJEMS

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Small and medium-sized enterprises (SMEs) are often credited with innovative entrepreneurial practices and conceiving new market opportunities. Government has reinforced these positive economic externalities through policy programmes and designated support structures. Venture capital organisations often galvanise innovative knowledge by entrenching and sustaining nascent businesses through value-creating funding behaviours. In this way, the venture capital industry financially supports entrepreneurial activity for economic growth and governs and nurtures the growth of the SMEs. These show that the venture capital industry embraces value-creating opportunities on the basis of rational partnerships with enterprises that have limited track records and less formal control mechanisms.The tentative factor analysis findings suggest an integrated framework for the venture capital industry from the significant intercorrelations among the variables. The most important focus of this article, however, is its attempt to examine the behavioural traits of SMEs and venture capitalists regarding systematic finance and investment for inclusivity and due diligence.Key words: investment and financial behaviour, formal and informal venture capital, value options, liquidity patterns, contractual devices, managerial reputation and involvement JEL: G24Abstract of small and growing ventures?

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“…Consequently, in this safer regime, banks …nance start-ups with debt contracts which require little monitoring. Winton and Yerramilli (2008) provide an explanation for why banks use debt contracts with little or no monitoring whereas VCs prefer convertibles with strong monitoring and exercise of control. They incorporate the di¤erences in the risk and returns of …rms'cash ‡ows to explain the relative use of VC and bank loans.…”

Section: Introductionmentioning

confidence: 99%

Banks Versus Venture Capital When the Venture Capitalist Values Private Benefits of Control

Barlo

İnci

2010

SSRN Journal

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If control of their …rms allows entrepreneurs to derive private bene…ts, it also allows other controlling parties. Private bene…ts are especially relevant for venture capitalists, who typically get considerable control in their portfolio …rms, but not for banks, which are passive loan providers. We incorporate this di¤erence between banks and venture capital and analyze entrepreneurs'…nancing strategy between the two. We …nd that, in all strict Nash Equilibria, entrepreneurs who value private bene…ts more choose banks while the rest choose venture capital. Thus, bank-…nanced entrepreneurs allocate more resources to tasks that yield private bene…ts while VC-backed entrepreneurs have higher pro…tability.

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Entrepreneurial finance: Banks versus venture capital

Cited by 149 publications

References 22 publications

Early-stage financing and firm growth in new industries

Early-stage financing and firm growth in new industries

The study of venture capital finance and investment behaviour in small and medium-sized enterprises

Banks Versus Venture Capital When the Venture Capitalist Values Private Benefits of Control

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