Venture Capitalists, Asymmetric Information, and Ownership in the Innovation Process

Arbeitspapier

In this paper we construct a model in which entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We show that as exacerbated development by better-informed venture-backed rms is used as a signal to enhance the sale price of developed innovations, venture capitalists must be sufciently more efficient in selecting innovative projects than incumbents in order to exist in equilibrium. Otherwise, incumbents undertake early preemptive, acquisitions to prevent the venture-backed rms' signaling-driven investment, despite the risk of buying a bad innovation. We nally show at what point the presence of active venture capitalists increases the incentives for entrepreneurial innovations.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IFN Working Paper ; No. 776

Classification and Topics

• Classification: Wirtschaft ; Game Theory and Bargaining Theory: General ; Firm Behavior: Theory ; Asymmetric and Private Information; Mechanism Design ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Firm Objectives, Organization, and Behavior: General ; New Firms; Startups ; Innovation; Research and Development; Technological Change; Intellectual Property Rights: General
• Subject: Venture Capitalists ; Innovation ; Entrepreneurs ; Signaling ; Development ; Risikokapital ; Innovation ; Eigentümerstruktur ; Signalling ; Übernahme ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fabrizi, Simona ; Lippert, Steffen ; Norbäck, Peh ; Persson, Lars
• Event: Veröffentlichung
• (who): Research Institute of Industrial Economics (IFN)
• (where): Stockholm
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/81383
• Last update: 10.03.2025, 11:43 AM CET