Faculty of Economics and Business Administration Publications Database

Financing a Portfolio of Projects

Müller, Holger M.
Münnich, Felix
Volume: 20
Number: 4
Pages: 1289 - 1325
Month: July
ISSN-Print: 0893-9454
Link External Source: Online Version
Year: 2007
Abstract: This article shows that investors financing a portfolio of projects may use the depth of their financial pockets to overcome entrepreneurial incentive problems. Competition for scarce informed capital at the refinancing stage strengthens investors'' bargaining positions. And yet, entrepreneurs'' incentives may be improved, because projects funded by investors with “shallow pockets” must have not only a positive net present value at the refinancing stage, but one that is higher than that of competing portfolio projects. Our article may help understand provisions used in venture capital finance that limit a fund''sinitial capital and make it difficult to add more capital once the initial venture capital fund is raised.