Dynamic Financing Strategies

Abstract

Entrepreneurial firms often lack the necessary financial resources to grow and even to survive. Venture capital (VC) is considered to be an important alternative financing source for young and fast-growing companies that reduces problems of information asymmetry, adverse selection, and moral hazard. Besides financial resources, VC provides credibility and legitimacy to its portfolio companies. Therefore, VC backed firms should be able to attract more outside financing. We empirically show that VC backed companies are, indeed, able to attract more long term and short term financing. However, more collateral is required for the additional debt financing.