Efficient venture capital financing combining debt and equity

Abstract.

I present a model of venture capital contracting in which contracts that involve a mixture of both debt and equity are efficient and dominate pure-equity and pure-debt financing. The optimal contract balances the venture capitalist's incentive to intervene in the project and the entrepreneur's desire for control.

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Received: 9 September 1997 / Accepted: 3 April 1998

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Marx, L. Efficient venture capital financing combining debt and equity. Rev Econ Design 3, 371–387 (1998). https://doi.org/10.1007/s100580050022

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  • JEL classification: G24, G32 Key words:Venture capital financing, convertible preferred equity