Start-ups , Venture Capitalists , and the Capital Gains Tax

  title={Start-ups , Venture Capitalists , and the Capital Gains Tax},
  author={Christian Keuschnigga and Soren Bo Nielsenb},
  • Christian Keuschnigga, Soren Bo Nielsenb
  • Published 2002
A model of start-up finance with double moral hazard is proposed. Entrepreneurs have ideas and technical competence, but lack own resources as well as commercial experience. Venture capitalists (VCs) provide start-up finance and managerial support. Both types of agents thus jointly contribute to the firm’s success, but neither type’s effort is verifiable. We find that the market equilibrium is biased towards inefficiently low entrepreneurial effort and venture capital support. In this situation… CONTINUE READING
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