Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/290365 
Year of Publication: 
2024
Citation: 
[Journal:] The Journal of Finance [ISSN:] 1540-6261 [Volume:] 79 [Issue:] 2 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2024 [Pages:] 1297-1352
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
I model positive sorting of entrepreneurs across the high and low value-added segments of the venture capital market. Aiming to attract high-quality entrepreneurs, inefficiently many venture capitalists (VCs) commit to provide high value-added by forming small portfolios. This draws the marginal entrepreneur away from the low value-added segment, reducing match quality in the high value-added segment too. There is underinvestment. Multiple equilibria may emerge, and they differ in aggregate investment. The model rationalizes evidence on VC returns and value-added along fundraising “waves” and when the cost of entrepreneurship falls, and generates untested predictions on the size and value-added of venture capital.
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article
Document Version: 
Published Version

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