Chapter 8. Fundraising
Fundraising sells a proposal or business idea to a particular market. The funds raised are used to create an invest equity vehicle that produces value shared between the promoters–managers and the investors. Funds may be raised over a period of one to two years. This can create information asymmetry and moral hazard problems between the venture capitalist and the individual investors that are typical for a principal–agent relationship.
The information asymmetry occurs because the investors have trouble monitoring the venture capitalist. Investments are generally made during the start-up stage so it is difficult to compare the investments with the market activity until the conclusion of this stage. Moral hazard is generated ...
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