| Factors such as lack of operational history, inadequate collateral, among others, may stand in the way of small new ventures' ability to raise funds from formal institutions of finance. However, there exist alternative sources of credit. This dissertation focuses on two such sources, namely kinship and venture capitalists.; In the first chapter, we study an altruistic kin's role in ameliorating the problems in new venture financing. We consider three tools for kinship participation, namely, gift, bank loan guarantee and tied assistance for the project. While there is no role for guarantee or tied assistance in the absence of better information about the entrepreneur, the kin may use all three tools to signal if he is better informed than the bank. His signalling choice depends crucially on his altruism intensity and the opportunity cost. The problem of credit rationing is eliminated even for very small levels of altruism, while no financing occurs for zero altruism. There are also interesting non-monotonicities in signalling.; The second chapter studies the basis for kinship control and insider lending by financial institutions in New England in the ante-bellum period. Based on the relationship between cotton textiles and financial institutions in that period, we identify three main factors to explain the origins of these institutional features---significant insider control over manufactures, importance of credit in commercial transactions and interest ceiling of six per cent on loans to manufactures. We also provide a theoretical model justifying the role of kinship in resource allocation through the market for banks as an efficient one. The importance and use of security-based loans weaken the argument for asymmetric information as an alternative explanation.; The last chapter studies the widespread tendency for syndication among venture capitalists (VCs), as well as their choice of syndicating partner. We emphasize both their (pre-investment) informational and (post-investment) value-adding roles in their portfolio firms in one unified framework, allowing for moral hazard in the partner's due diligence activity. We provide conditions, relating to size and composition of the lead VCs network, under which "good" VCs are likely to syndicate deals with other "good" VCs, and conditions when opposites attract. |
