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| Author: | Schwienbacher, A. |
| Title: | Innovation and venture capital exits |
| Journal: | Economic Journal
2008 : NOV, VOL. 118:533, p. 1888-1916 |
| Index terms: | financing investment banks venture capital innovation strategy new enterprise small business companies |
| Language: | eng |
| Abstract: | This article deals with how start-ups financed by venture capital select their innovation strategy based on the investor's exit preferences and thereby form different outcomes in the product market. Innovation choices and venture capital exits (initial public offerings (IPO) vs. trade sale) are explored in a setting in which entrepreneurs (here as: enpnr/s.) derive private benefits from staying independent, which is better guaranteed under an IPO. The enpnr/s. has/have incentives to distort the innovation strategy to induce the venture capitalist to bring the company public. A number of empirical implications are generated for the link btw. innovation, valuation, venture capital exit routes and market structure. |
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