Publication Type

Journal Article

Version

submittedVersion

Publication Date

9-2007

Abstract

We propose a model that examines the optimal size of venture capital and private equity fund portfolios. The relationship between a VC and entrepreneurs is characterized by double-sided moral hazard, which causes the VC to trade off larger portfolios against lower values of portfolio companies. We analyze the structural relations between the VC's optimal portfolio structure and entrepreneurs' and VC's productivities, their disutilities of effort, the value of a successful project, and the required initial investment in a venture. We also test the model's predictions using a small proprietary dataset collected through a survey targeted to VC and private equity funds worldwide.

Keywords

Venture capital, Private equity, Fund portfolio

Discipline

Corporate Finance

Research Areas

Finance

Publication

Journal of Corporate Finance

Volume

13

Issue

4

First Page

564

Last Page

590

ISSN

0929-1199

Identifier

10.1016/j.jcorpfin.2007.04.004

Publisher

Elsevier

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