Financing and Advising: Optimal Financial Contracts with Venture Capitalists

摘要: This paper analyses the joint provision of effort by an entrepreneur and advisor to improve productivity investment project. Without moral hazard, it is optimal that both exert effort. With if entrepreneur's more efficient (less costly) than advisor's effort, latter not hired she does provide funds. Outside financing arises endogenously. explains why investors like venture capitalists are value enhancing. The level outside determines whether common stocks or convertible bonds should be issued in response incentives.