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Full-Text Articles in Social and Behavioral Sciences
Venture Capital And Sequential Investments, Dirk Bergemann, Ulrich Hege, Liang Peng
Venture Capital And Sequential Investments, Dirk Bergemann, Ulrich Hege, Liang Peng
Cowles Foundation Discussion Papers
We present a dynamic model of venture capital financing, described as a sequential investment problem with uncertain outcome. Each venture has a critical, but unknown threshold beyond which it cannot progress. If the threshold is reached before the completion of the project, then the project fails, otherwise it succeeds. The investors decide sequentially about the speed of the investment and the optimal path of staged investments. We derive the dynamically optimal funding policy in response to the arrival of information during the development of the venture. We develop three types of predictions from our theoretical model and test these predictions …
Venture Capital And Sequential Investments, Dirk Bergemann, Ulrich Hege, Liang Peng
Venture Capital And Sequential Investments, Dirk Bergemann, Ulrich Hege, Liang Peng
Cowles Foundation Discussion Papers
We analyze sequential investment decisions in an innovative project that depend on the investor’s information about the project failure risk and its potential final value. We consider the feedback effects between learning about the project parameters and the continuous adjustment of the investment strategy. Investors decide sequentially about the speed of investment and the optimal degree of involvement. We develop three types of predictions from our theoretical model and test these predictions in a large sample of venture capital investment in the U.S. for the period of 1987-2002. First, the investment flow starts cautiously if the failure risk is high …
Venture Capital And Sequential Investments, Dirk Bergemann, Ulrich Hege, Liang Peng
Venture Capital And Sequential Investments, Dirk Bergemann, Ulrich Hege, Liang Peng
Cowles Foundation Discussion Papers
We present a dynamic model of venture capital financing, described as a sequential investment problem with uncertain outcome. Each venture has a critical, but unknown threshold beyond which it cannot progress. If the threshold is reached before the completion of the project, then the project fails, otherwise it succeeds. The investors decide sequentially about the speed of the investment and the optimal path of staged investments. We derive the dynamically optimal funding policy in response to the arrival of information during the development of the venture. We develop three types of predictions from our theoretical model and test these predictions …