Why Suboptimal Contracts Are Usually Chosen in Venture Capital Backed Nascent Entrepreneurship?
Vol. Volume 19, Number 4 December/2014
This paper attempts to interpret the reason of high failure rate in venture capital backed nascent entrepreneurship by applying contract theory and employing a theoretical model of contract choice between entrepreneurs and venture capitalists. The results of the model show that the suboptimal contract for new venture growth not only is the best choice of venture capitalists, but also the best choice of nascent entrepreneurs, which may lead to a high failure rate in venture capital backed nascent entrepreneurship. Some implications and solutions are also discussed.
Nascent entrepreneurship; Suboptimal contracts; Venture capital backed