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The Entrepreneur's Choice: Venture Capital Debt Financing with Adverse Selection

The Entrepreneur's Choice: Venture Capital Debt Financing with Adverse Selection

This paper studies the consequences of using a debt contract to raise venture capital for an entrepreneurial project in an adverse selection setting with different quality venture capitalists. The paper considers not only the likelihood of success of a one-time project being dependent on the quality of the venture capitalist, but also the problem of a reduced ownership value of future rents from the venture if the venture capitalist takes it...

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