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The Venture Capital Investment Bust: Did Agency Costs Play A Role? Was It Something Lawyers Helped Structure?, Joseph Bankman, Marcus Cole
The Venture Capital Investment Bust: Did Agency Costs Play A Role? Was It Something Lawyers Helped Structure?, Joseph Bankman, Marcus Cole
G. Marcus Cole
This Article examines the question of why venture capital firms would continue to raise technology funds, and then invest those funds, when they were certain that the business markets for such investments were overvalued preceding the “crash” of April 2000. We interviewed a number of venture capitalists, lawyers, entrepreneurs, and other industry observers in search of an explanation. The explanations offered by key decision makers for the observed investment behavior can be categorized as of three types of theories: agency cost theories, herd behavior and other cognitive bias theories, and non–agency cost theories. Agency cost theories suggest that the activity …