Venture Debt Financing: Determinants of the Lending Decision

Strategic Entrepreneurship Journal

Volumn 10, Issue 3, 2016, Pages 235-256

  de Rassenfosse, Gaétan ^a   Fischer, Timo ^b  

^a EPFL   (Switzerland)

^b TECHNICAL UNIVERSITY OF MUNICH   (Germany)

Author keywords

discrete choice experiment; patent collateral; patent signaling; venture capital; venture debt

Indexed keywords

EID: 84977520320     PISSN: 19324391     EISSN: 1932443X     Source Type: Journal    
DOI: 10.1002/sej.1220     Document Type: Article

References (85)

1. Amit R, Brander J, Zott C. 1998. Why do venture capital firms exist? Theory and Canadian evidence. Journal of Business Venturing 13: 441–466.
2. Armstrong J, Overton T. 1977. Estimating nonresponse bias in mail surveys. Journal of Marketing Research 14: 396–402.
3. Arora A, Fosfuri A, Gambardella A. 2001. Markets for Technology: The Economics of Innovation and Corporate Strategy. MIT Press: Cambridge, MA.
4. Athey S, Stern S. 1998. An empirical framework for testing theories about complementarity in organizational design. Working paper, National Bureau of Economic Research, Cambridge, MA. Available at: http://www.nber.org/papers/w6600 (accessed 23 March 2016).
5. Barro R. 1976. The loan market, collateral, and rates of interest. Journal of Money, Credit and Banking 8: 439–456.
6. Baum JA, Silverman B. 2004. Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology startups. Journal of Business Venturing 19(3): 411–436.
7. Beggs S, Cardell S, Hausman J. 1981. Assessing the potential demand for electric cars. Journal of Econometrics 17: 1–19.
8. Berger A, Udell G. 1998. The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle. Journal of Banking & Finance 22: 613–673.
9. Besanko D, Thakor AV. 1987. Collateral and rationing: sorting equilibria in monopolistic and competitive credit markets. International Economic Review 28(3): 671–689.
10. Bester H. 1987. The role of collateral in credit markets with imperfect information. European Economic Review 31: 887–899.
11. Brennan M, Kraus A. 1987. Efficient financing under asymmetric information. Journal of Finance 42: 1225–1243.
12. Brownstone D, Train K. 1999. Forecasting new product penetration with flexible substitution patterns. Journal of Econometrics 89: 109–129.
13. Carey M, Hrycay M. 2001. Parameterizing credit risk models with rating data. Journal of Banking & Finance 25: 197–270.
14. Cassar G. 2004. The financing of business start-ups. Journal of Business Venturing 19: 261–283.
15. Chan Y. 1983. On the positive role of financial intermediation in allocation of venture capital in a market with imperfect information. Journal of Finance 38: 1543–1561.
16. Chapman R, Staelin R. 1982. Exploiting rank ordered choice set data within the stochastic utility model. Journal of Marketing Research 19: 288–301.
17. Conti A, Thursby J, Thursby M. 2013a. Are patents endogenous or exogenous to startup financing? Journal of Industrial Economics 61: 592–622.
18. Conti A, Thursby M, Rothaermel F. 2013b. Show me the right stuff: signals for high tech startups. Journal of Economics & Management Strategy 22: 341–364.
19. Crawford D. 2003. Smartcard Systems, Inc. Case study UVA-F-1405, University of Virginia, Charlottesville, VA.
20. de Bettignies JE, Brander JA. 2007. Financing entrepreneurship: bank finance versus venture capital. Journal of Business Venturing 22(6): 808–832.
21. de Rassenfosse G, Palangkaraya A, Webster E. Forthcoming Why do patents facilitate trade in technology? Testing the disclosure and appropriation effects. Research Policy. doi: 10.1016/j.respol.2016.03.017.
22. Elango B, Fried VH, Hisrich RD, Polonchek A. 1995. How venture capital firms differ. Journal of Business Venturing 10(2): 157–179.
23. Fischer T, Henkel J. 2013. Complements and substitutes in profiting from innovation: a choice experimental approach. Research Policy 42: 326–339.
24. Fischer T, Ringler P. 2014. What patents are used as collateral: an empirical analysis of patent reassignment data. Journal of Business Venturing 29(5): 633–650.
25. Franke N, Gruber M, Harhoff D, Henkel J. 2006. What you are is what you like: similarity biases in venture capitalists’ evaluations of start-up teams. Journal of Business Venturing 21: 802–826.
26. Fried VH, Hisrich RD. 1994. Toward a model of venture capital investment decision making. Financial Management 23(3): 28–37.
27. Gompers P. 1995. Optimal investment, monitoring, and the staging of venture capital. Journal of Finance 50: 1461–1489.
28. Gompers P. 2001. Xedia and Silicon Valley Bank (A). HBS Case 9-298-119, Harvard University, Boston, MA.
29. Gorman M, Sahlman WA. 1989. What do venture capitalists do? Journal of Business Venturing 4(4): 231–248.
30. Graham J, Harvey C. 2001. The theory and practice of corporate finance: evidence from the field. Journal of Financial Economics 60: 187–243.
31. Graham S, Merges R, Samuelson P, Sichelman T. 2009. High technology entrepreneurs and the patent system: results of the 2008 Berkeley Patent Survey. Berkeley Technology Law Journal 24: 255–327.
32. Green P, Srinivasan V. 1990. Conjoint analysis in marketing: new developments with implications for research and practice. Journal of Marketing 54: 3–19.
33. Green R. 1984. Investment incentives, debt, and warrants. Journal of Financial Economics 13: 115–136.
34. Greene W. 2010. Testing hypotheses about interaction terms in nonlinear models. Economics Letters 107: 291–296.
35. Hall J, Hofer CW. 1993. Venture capitalists' decision criteria in new venture evaluation. Journal of Business Venturing 8(1): 25–42.
36. Hardymon F, Leamon A. 2001. Silicon Valley Bank. HBS Case 9-800-332, Harvard University, Boston, MA.
37. Hardymon F, Lerner J, Leamon A. 2005. Gold Hill venture lending. HBS Case 9-804-083, Harvard University, Boston, MA.
38. Hausman J, Wise D. 1978. A conditional probit model for qualitative choice: discrete decisions recognizing interdependence and heterogeneous preferences. Econometrica 46: 403–426.
39. Häussler C, Harhoff D, Mueller E. 2009. To be financed or not: the role of patents for venture capital financing. Centre for Economic Policy Research discussion paper 7115. Available at: http://papers.ssrn.com/sol3/papers.cfm? abstract_id=1345641 (accessed 23 March 2016).
40. Hellmann T, Puri M. 2002. Venture capital and the professionalization of start-up firms: empirical evidence. Journal of Finance 57: 169–197.
41. Hisrich RD, Jankowicz AD. 1990. Intuition in venture capital decisions: an exploratory study using a new technique. Journal of Business Venturing 5(1): 49–62.
42. Hochberg Y, Serrano C, Ziedonis R. 2014. Patent collateral, investor commitment, and the market for venture lending. Working paper, National Bureau of Economic Research, Cambridge, MA. Available at: http://www.nber.org/papers/w20587 (accessed 23 March 2016).
43. Hoenen S, Kolympiris C, Schoenmakers W, Kalaitzandonakes N. 2014. The diminishing signaling value of patents between early rounds of venture capital financing. Research Policy 43(6): 956–989.
44. Hoenig D, Henkel J. 2015. Quality signals? The role of patents, alliances, and team experience in venture capital financing. Research Policy 44(5): 1049–1064.
45. Hoetker G. 2007. The use of logit and probit models in strategic management research: critical issues. Strategic Management Journal 28(4): 331–343.
46. Hole AR. 2007. Fitting mixed logit models by using maximum simulated likelihood. Stata Journal 7: 388–401.
47. Holmstrom B, Tirole J. 1997. Financial intermediation, loanable funds, and the real sector. Quarterly Journal of Economics 112: 663–691.
48. Hsu D. 2004. What do entrepreneurs pay for venture capital affiliation? Journal of Finance 59: 1805–1844.
49. Hsu D. 2007. Experienced entrepreneurial founders, organizational capital, and venture capital funding. Research Policy 36(5): 722–741.
50. Hsu D, Ziedonis RH. 2013. Resources as dual sources of advantage: implications for valuing entrepreneurial-firm patents. Strategic Management Journal 34(7): 761–781.
51. Huang C, Shields T. 2000. Interpretation of interaction effects in logit and probit analyses: reconsidering the relationship between registration laws, education, and voter turnout. American Politics Quarterly 28: 72–79.
52. Ibrahim D. 2010. Debt as venture capital. University of Illinois Law Review 2010: 1169–1210.
53. Inderst R, Mueller HM. 2007. A lender-based theory of collateral. Journal of Financial Economics 84(3): 826–859.
54. Jensen M, Meckling W. 1976. Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3: 305–360.
55. Kraus A, Litzenberger RH. 1973. A state preference model of optimal financial leverage. Journal of Finance 28(4): 911–922.
56. Long JS, Freese J. 2006. Regression Models for Categorical Dependent Variables using Stata (2nd edn). Stata Press: College Station, TX.
57. Lussier D, Olshavsky R. 1979. Task complexity and contingent processing in brand choice. Journal of Consumer Research 6: 154–165.
58. MacMillan IC, Siegel R, Narasimha PS. 1985. Criteria used by venture capitalists to evaluate new venture proposals. Journal of Business Venturing 1(1): 119–128.
59. Mann RJ. 1997. Explaining the pattern of secured credit. Harvard Law Review 110(3): 625–683.
60. Mann RJ. 1999. Secured credit and software financing. Cornell Law Review 85: 134–188.
61. McFadden D. 1974. Conditional logit analysis of qualitative choice behavior. In Frontiers in Econometrics, Zarembka P (ed). Academic Press: New York; 105–142.
62. McFadden D, Train K. 2000. Mixed MNL models for discrete response. Journal of Applied Econometrics 15: 447–470.
63. Munari F, Odasso MC, Toschi L. 2011. Patent-backed finance. In The Economic Valuation of Patents: Methods and Applications, Munari F, Oriani R (eds). Edward Elgar Publishing: Cheltenham, U.K.; 309–336.
64. Norton E, Wang H, Ai C. 2004. Computing interaction effects in logit and probit models. Stata Journal 4: 154–167.
65. Petersen MA, Rajan RG. 1994. The benefits of lending relationships: evidence from small business data. Journal of Finance 49: 3–37.
66. Puri M, Zarutskie R. 2012. On the lifecycle dynamics of venture-capital- and non-venture-capital-financed firms. Journal of Finance 67: 2247–2293.
67. Reitzig M, Henkel J, Heath C. 2007. On sharks, trolls, and their patent prey: unrealistic damage awards and firms’ strategies of 'being infringed.' Research Policy 36: 134–154.
68. Revelt D, Train K. 1998. Mixed logit with repeated choices: households' choices of appliance efficiency level. Review of Economics and Statistics 53: 647–657.
69. Roberts M, Sahlman W, Kind L. 2008. Pinnacle Ventures. HBS Case 9-808-048. Harvard University, Boston, MA.
70. Sahlman W. 1990. The structure and governance of venture-capital organizations. Journal of Financial Economics 27: 473–521.
71. Sapienza H, Manigart S, Vermeir W. 1996. Venture capitalist governance and value added in four countries. Journal of Business Venturing 11: 439–469.
72. Shane S, Cable D. 2002. Network ties, reputation, and the financing of new ventures. Management Science 48(2): 364–381.
73. Shepherd DA. 1999. Venture capitalists' assessment of new venture survival. Management Science 45(5): 621–632.
74. Shepherd DA, Zacharakis A. 1999. Conjoint analysis: a new methodological approach for researching the decision policies of venture capitalists. Venture Capital 1: 197–217.
75. Shleifer A, Vishny RW. 1992. Liquidation values and debt capacity: a market equilibrium approach. Journal of Finance 47(2): 1343–1366.
76. Smith C, Warner J. 1979. On financial contracting: an analysis of bond covenants. Journal of Financial Economics 7: 117–161.
77. Stiglitz J, Weiss A. 1981. Credit rationing in markets with imperfect information. American Economic Review 71: 393–410.
78. Stuart T, Hoang H, Hybels R. 1999. Interorganizational endorsements and the performance of entrepreneurial ventures. Administrative Science Quarterly 44: 315–349.
79. Tyebjee TT, Bruno AV. 1984. A model of venture capitalist investment activity. Management Science 30(9): 1051–1066.
80. Ueda M. 2004. Banks versus venture capital: project evaluation, screening, and expropriation. Journal of Finance 59(2): 601–622.
81. Viscusi W. 1978. A note on 'lemons' markets with quality certification. Bell Journal of Economics 9: 277–279.
82. Wagner S, Cockburn I. 2010. Patents and the survival of internet-related IPOs. Research Policy 39: 214–228.
83. Winton A, Yerramilli V. 2008. Entrepreneurial finance: banks versus venture capital. Journal of Financial Economics 88(1): 51–79.
84. Yu J, Goos P, Vandebroek M. 2009. Efficient conjoint choice designs in the presence of respondent heterogeneity. Marketing Science 28: 122–135.
85. Zacharakis AL, Shepherd DA. 2001. The nature of information and overconfidence on venture capitalists' decision making. Journal of Business Venturing 16(4): 311–332.