| Each of the four essays in this dissertation addresses a different aspect of the venture capital market. All focus on the role of the venture capitalist as an intermediary who finances entrepreneurial projects. The main topics are: the type of investments; the difference between venture capital and other financial intermediaries; and the effect of the venture capitalist's assistance.;"Assistance in the Venture Capital Market" presents a simplified model that focuses directly upon the role of assistance in the venture capital process. The entrepreneur's effort affects the probability of success in a two-state model, while the venture capitalist's assistance reduces the losses when the project's payoffs are low. Projects financed by venture capital have lower probabilities of success and receive smaller amounts of capital than similar projects that qualify for loans.;The other two essays are primarily empirical. "Venture Capital Investments" defines the market for venture capital with an investigation of the types of investments and the availability of capital. Compared to other publicly traded companies, those that receive venture capital are riskier, have higher rates of return, and are concentrated in different industries, particularly computers. The industry distribution of companies at early stages in the venture capital process is similar to that of the publicly traded companies, but all of the industry profiles change significantly between 1980 and 1985.;"The Effect of the Capital Gains Tax on Investments in Venture Capital" demonstrates that the primary effect of the 1978 reduction in the capital gains tax was a reduction in the rate of return on venture backed companies. This result conflicts with the common view that there was an increase in the proportion of funding commitments provided by investors paying lower tax rates.;Two of the essays develop related principal-agent models of the venture capital process. In "An Asymmetric Information Model of the Venture Capital Market," both the entrepreneur's effort and the venture capitalist's assistance affect the probabilities of the payoff distribution. When effort and assistance are both unobservable, the entrepreneur prefers to hire capital and assistance separately, rather than bundled in venture capital. When each of the market participants has limited liability, the entrepreneur receives the same contract from the venture capitalist and the separate markets for capital and assistance. |
