Optimal Investment, Monitoring, and the Staging of Venture Capital

PAUL A. GOMPERS

doi:10.1111/j.1540-6261.1995.tb05185.x

journal article Dec 01, 1995

Optimal Investment, Monitoring, and the Staging of Venture Capital

PAUL A. GOMPERS

The Journal of Finance Vol. 50 No. 5 pp. 1461-1489 · Wiley

View at Publisher Save 10.1111/j.1540-6261.1995.tb05185.x

Abstract

ABSTRACTThis paper examines the structure of staged venture capital investments when agency and monitoring costs exist. Expected agency costs increase as assets become less tangible, growth options increase, and asset specificity rises. Data from a random sample of 794 venture capital‐backed firms support the predictions. Venture capitalists concentrate investments in early stage and high technology companies where informational asymmetries are highest. Decreases in industry ratios of tangible assets to total assets, higher market‐to‐book ratios, and greater R&D intensities lead to more frequent monitoring. Venture capitalists periodically gather information and maintain the option to discontinue funding projects with little probability of going public.

Topics

No keywords indexed for this article. Browse by subject →

References

36

[1]

10.1111/j.1540-6261.1994.tb05146.x

[2]

10.1287/mnsc.36.10.1233

[3]

10.1111/j.1540-6261.1995.tb04797.x

[4]

10.1016/0304-405x(94)90009-4

[5]

10.1111/j.1540-6261.1984.tb03680.x

[6]

10.1111/j.1540-6261.1983.tb03840.x

[7]

FazzariS. G. Hubbard andB.Petersen 1988 Investment and finance reconsidered Brookings Papers on Economic Activity 141–195. 10.2307/2534426

[8]

10.1111/j.1540-6261.1988.tb03938.x

[9]

Gompers P. 1993a Syndication hold‐out problems and venture capital Working paper University of Chicago.

[10]

Gompers P. 1993b Incentives screening and venture capital: A role for convertible debt Working paper University of Chicago.

[11]

Gompers P. andJ.Lerner 1995 An analysis of compensation in the US venture partnership Working paper University of Chicago and Harvard University.

[12]

10.1016/0883-9026(89)90014-1

[13]

10.1111/j.1540-6261.1991.tb03753.x

[14]

Hart O. 1991 Theories of optimal capital structure: A principal‐agent perspective Working paper Harvard University.

[15]

10.2307/2937905

[16]

10.1016/0304-405x(87)90003-1

[17]

Jensen M. "Theory of the firm: Managerial behavior, agency costs, and ownership structure" Journal of Financial Economics (1976) 10.1016/0304-405x(76)90026-x

[18]

Jensen M. "Agency cost of free cash flow, corporate finance and takeovers" AER Papers and Proceedings (1986)

[19]

Kiefer N. "Economic duration data and hazard functions" Journal of Economic Literature (1988)

[20]

10.2307/1914140

[21]

10.1016/0304-4076(85)90073-9

[22]

10.2307/3665618

[23]

10.1016/0304-405x(94)90035-3

[24]

10.1111/j.1540-6261.2004.00692.x

[25]

10.1111/j.1540-6261.1994.tb04418.x

[26]

10.2307/2118445

[27]

Pindyck R. "Irreversibility, uncertainty, and investment" Journal of Economic Literature (1991)

[28]

Rajan R. andL.Zingales 1995 What do we know about capital structure? Some evidence form international data Journal of Finance forthcoming. 10.3386/w4875

[29]

10.2307/1912754

[30]

10.1016/0304-405x(90)90065-8

[31]

Sahlman W. 1992 Insights from the venture capital industry Working paper Harvard University.

[32]

Sahlman W. andH.Stevenson 1987 Capital Market Myopia Harvard Business School Case.

[33]

10.1111/j.1540-6261.1992.tb04661.x

[34]

10.1111/j.1540-6261.1988.tb02585.x

[35]

10.2307/3003573

[36]

10.1111/j.1540-6261.1988.tb04592.x

Cited By

1,496

The missing middle: Designing and implementing a venture capital fund for seed-stage deep-tech ventures

Hessel G. Mittelmeijer, A․ Georges L. Romme · 2026

Journal of Business Venturing Desig...

Do women entrepreneurs influence their start-up’s exit? Entrepreneurial identity and firm exit in high-tech

Eliran Solodoha, Stav Rosenzweig · 2026

Journal of Business Research

Institutions, uncertainty, and venture capital staged investments in ICT start-ups

Bin Hao, Wen Zheng · 2026

European Management Journal

The Effect of Policy Uncertainty on VC Investments Around the World

Lubomir P. Litov, Xia (Summer) Liu · 2024

Journal of Law, Finance, and Accoun...

Does Investor Gender Matter for the Success of Female Entrepreneurs? Gender Homophily and the Stigma of Incompetence in Entrepreneurial Finance

Kaisa Snellman, Isabelle Solal · 2023

Organization Science

Government R&D support and firms’ access to external financing: funding effects, certification effects, or both?

Di Guo, Yan Guo · 2022

Technovation

The role of high-skilled foreign labor in startup performance: Evidence from two natural experiments

Jun Chen, Shenje Hshieh · 2021

Journal of Financial Economics

How corporate social responsibility can incentivize top managers: A commitment to sustainability as an agency intervention

Michael Greiner, Jing Sun · 2021

Corporate Social Responsibility and...

The Role of Venture Capital Investment in Startups’ Sustainable Growth and Performance: Focusing on Absorptive Capacity and Venture Capitalists’ Reputation

Jihye Jeong, Juhee Kim · 2020

Sustainability

Being at the right place at the right time: does the timing within technology waves determine new venture success?

Franziska Schlichte, Sebastian Junge · 2019

Journal of Business Economics

The Experts in the Crowd: The Role of Experienced Investors in a Crowdfunding Market1

Keongtae Kim, Siva Viswanathan · 2019

MIS Quarterly

Does success bring success? The post-offering lives of equity-crowdfunded firms

Andrea Signori, Silvio Vismara · 2018

Journal of Corporate Finance

The power of positivity? The influence of positive psychological capital language on crowdfunding performance

Aaron H. Anglin, Jeremy C. Short · 2018

Journal of Business Venturing

A Review and Road Map of Entrepreneurial Equity Financing Research: Venture Capital, Corporate Venture Capital, Angel Investment, Crowdfunding, and Accelerators

Will Drover, Lowell Busenitz · 2017

Journal of Management

Diversification, risk, and returns in venture capital

Axel Buchner, Abdulkadir Mohamed · 2017

Journal of Business Venturing

From the crowd to the market: The role of reward-based crowdfunding performance in attracting professional investors

Paolo Roma, Antonio Messeni Petruzzelli · 2017

Research Policy

A Theory of Entrepreneuring

Nathan Furr, Jackson A. Nickerson · 2016

SSRN Electronic Journal

Dynamics and Performance of French Venture-Backed Firms: Empirical Evidence

Emmanuelle Dubocage, Jean Rédis · 2016

Revue de l’Entrepreneuriat / Review...

Returns on Investments in Equity Crowdfunding

Andrea Signori, Silvio Vismara · 2016

SSRN Electronic Journal

Disentangling the Multiple Effects of Affiliate Reputation on Resource Attraction in New Firms

Tom Vanacker, Daniel P. Forbes · 2016

Organization Science

Metrics

1,496

Citations

36

References

Details

Published: Dec 01, 1995
Vol/Issue: 50(5)
Pages: 1461-1489
License: View

Authors

P

PAUL A. GOMPERS

Cite This Article

PAUL A. GOMPERS (1995). Optimal Investment, Monitoring, and the Staging of Venture Capital. The Journal of Finance, 50(5), 1461-1489. https://doi.org/10.1111/j.1540-6261.1995.tb05185.x

Optimal Investment, Monitoring, and the Staging of Venture Capital

You May Also Like