Edited by Dawn R. DeTienne and Karl Wennberg
Chapter 4: Survey on venture capital financing exit stage
New business creation is shown to be a potent force for economic development and productivity improvement (Aghion and Howitt, 2006; Aghion et al., 2004). However, entrepreneurial ideas and product development require substantial capital during their seminal stages. Banks are an important source of financing for a subset of new businesses firms, but the majority of young firms remain unlikely to receive significant bank loans because they have substantial intangible assets, they are associated with significant ex ante uncertainty and they are still producing operating losses that make it impossible for them to assure interest payment on debt obligations (Ueda, 2004). Furthermore, young entrepreneurial firms need, in addition to capital, substantial competences to transform their ideas into a mature business. The specificity of venture capital (VC) is its ability to bridge these competence gaps and to finance the high-risk and potentially high-reward ventures (Sahlman, 1990; Hellmann and Puri, 2000, 2002; Brander et al., 2002).
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