Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81383
Authors: 
Fabrizi, Simona
Lippert, Steffen
Norbäck, Peh
Persson, Lars
Year of Publication: 
2008
Series/Report no.: 
IFN Working Paper 776
Abstract: 
In this paper we construct a model in which entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We show that as exacerbated development by better-informed venture-backed rms is used as a signal to enhance the sale price of developed innovations, venture capitalists must be sufciently more efficient in selecting innovative projects than incumbents in order to exist in equilibrium. Otherwise, incumbents undertake early preemptive, acquisitions to prevent the venture-backed rms' signaling-driven investment, despite the risk of buying a bad innovation. We nally show at what point the presence of active venture capitalists increases the incentives for entrepreneurial innovations.
Subjects: 
Venture Capitalists
Innovation
Entrepreneurs
Signaling
Development
JEL: 
C70
D21
D82
G24
L20
M13
O30
Document Type: 
Working Paper

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