Venture capital (VC) firms are pools of private capital that typically invest in
ID: 1108730 • Letter: V
Question
Venture capital (VC) firms are pools of private capital that typically invest in small, fast-growing companies, which usually can't raise funds through other means. In exchange for this financing, the VCs receive a share of the company's equity, and the founders of the firm typically stay on and continue to manage the compnay. a. Describe the nature oft eh incentive conflict between VCs and the managers, identifying the principal and the agent. VC investments have two typical components: (1) Managers maintain some ownership in the compnay and often earn additional equity if the company peroforms well; (2) VCs demand seats on the company's board. b. Discuss how these two compnents help address the incentive conflict
Explanation / Answer
a) The incentive conflict is between the financial speculators (the principals) and the directors (agents).The VCs need the managers to take activities to build firm esteem while the supervisor is more probable worried about taking activities that expansion individual prosperity.
b. Manager possession is a type of motivator pay that adjusts the impetuses of the specialist to the key. As proprietors of the firm, chiefs turn out to be more worried about taking activities that increase firm value. Board portrayal serves two capacities. To begin with, it is a type of observing where the VCs can watch administrators' activities all the more intently. Second, it incorporates basic leadership expert for certain abnormal state choices at the essential (VC) level.
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