创业融资外文翻译.docx

1、创业融资外文翻译本科毕业论文（设计）外 文 翻 译题 目 大学生创业融资渠道研究 专 业 财 务 管 理 Entrepreneurial Financing The financing of startups entails potentially extreme adverse selection costs given the absent track record of the firms seeking capital, and given the risky nature of the industries in which many of them operate. Exacerb

2、ating the problem, this scenario often involves an innovator who has extensive technical knowledge but has neither the accumulated reputation nor the bondable wealth necessary to convey this information credibly.Barry characterizes venture capital as having evolved precisely to fill this startup fin

3、ancing niche:At the level of small, risky ventures, access to capital markets is restricted. Not all entrepreneurs can self-finance their projects, and not all can find bankers or angels who will carry the shortfall. Venture capitalists offer them a source of funds that is specifically designed for

4、use in risky settings. The venture capitalists themselves perform due diligence prior to investing, and information gleaned in that process can greatly reduce the adverse selection problem.This outlook raises several questions. Why is it assumed that banks cannot (or choose not to) perform the same

5、level of due diligence as venture capitalists (VCs)? In what sense is venture capital “designed” for risky settings? The puzzle deepens when one notes that straight debt is typically advocated as a solution to the adverse selection problem whereas in practice VCs often hold convertible preferred equ

6、ity. Indeed, a defining characteristic of the venture capital market is that contracts are fairly high-powered in the sense that expected payoffs come disproportionately from the equity component or “upside”.These questions can be addressed by reflecting upon the costly due diligence to which Barry

7、refers. By directly revealing the projects quality, due diligence reduces information asymmetry between entrepreneurs and the VC. By contrast, if quality were signaledthe traditional solution to the adverse selection problemcostly due diligence would be unnecessary since there would be no more infor

8、mation to convey. In otherwise, either signaling or costly due diligence can solve the adverse selection problem. The two mechanisms are substitutes; the question then becomes which is more cost-effective.The first contribution of the paper is to show that signaling can be prohibitively expensive in

9、 entrepreneurial financing markets, and so costly due diligence dominates. The “cost” of signaling is driven by the incentives of bad firms to pool. Yet, for startups, if funding is not obtained then the firm may have almost no value. With such low reservation values, bad entrepreneurs attempt to po

10、ol at nearly any cost. As the analysis shows, securities is unattractive enough to drive out bad entrepreneursand thus to serve as a credible signaltend to be unattractive to good entrepreneurs as well. Costly due diligence emerges as the preferred solution.As testament to the empirical importance o

11、f due diligence costs in venture capital markets, Fried and Hans characterize the VC funding process as composed of six distinct, progressively rigorous stages of screening. This due diligence takes an average of 97 days to complete even before the first round of funding is initiated. The majority o

12、f funding proposals do not successfully pass through the first screen, let alone subsequent screens, and the full process is described as “much more involved in bank loan reviews.The second contribution of the paper is to illustrate a link between costly due diligence and high-powered (or equity-lik

13、e) financial contracts. The intuition behind this link is simple. By definition, low-powered contracts are safe; i.e., expected payoffs vary little across firms. High-powered contracts magnify the differential in payoff between funding good and bad projects, and hence magnify the incentives to scree

14、n out bad projects. In effect, high-powered contracts make the VC bear the cost of choosing entrepreneurs unwisely. Therefore high-powered contracts encourage due diligence.To summarize, this model is designed to make three simple points: (1) upside sharing is to be expected given costly evaluation,

15、 (2) such costly evaluations serve as a substitute traditional solutions to the adverse selection problem, and (3) traditional solutions are dominated for parameterizations of the model that correspond to venture capital markets.Following the path-breaking empirical work of Saar, a theoretical liter

16、ature on VC contract design emerged. One common feature of these papers is that they rationalize the optimality of convertible securities. A second common feature of these models is the admission of agency costs. For example, VCs and entrepreneurs may have different preferences regarding project ris

17、k or exit strategy.In part, the literatures reliance on agency costs owes to a widespread belief in their empirical relevance. It is also presumably related to the aforementioned consensus: since debt is considered the optimal response to adverse selection, non-debt securities must imply the presenc

18、e of another market friction. On the other hand, it is clear how agency costs could lead to equity-like securities. Conflicts-of-interest over future actions are mitigated by granting both parties roughly symmetrical payoffs, which leads to upside-sharing. Of course, the omission of agency problems

19、from the current model is not intended to suggest that they are unimportant empirically. Rather, the lesson is that agency costs are not a necessary condition for equity-like securities.Perhaps surprisingly, the theoretical results most closely related to this paper are contained in analyses of publ

20、icly traded securities. Assuming liquidity is exogenous and that prices are set by competitive market makers, Boot and Thakor show that splitting securities into an information-sensitive piece and a safer piece may either increase or decrease traders incentives to produce information. Fulghieri and

21、Lukin study a similar environment but split the firms claims into a piece sold to outside investors and another piece that is retained, again analyzing the interaction between security design and information acquisition.Two important distinctions set my results apart from these models of public trad

22、ing. First, their models exogenously rule out signaling, so it not possible to examine whether traditional solutions to adverse selection are dominated and, if so, under what conditions. Second, it is not clear how the results of these public trading models might be extended to entrepreneurial finan

23、ce markets since the assumption that drives their resultslosses by liquidity traders with perfectly inelastic demandhas no obvious counterpart in an entrepreneurial finance setting.The economy consists of entrepreneurs with projects requiring capital investment K. The value of funded projects is 1 w

24、ith probability , where G, B is an indicator of project quality, and 1 otherwise.Funded projects have expected value Vi = 1 + (1 ). It is assumed that K. Otherwise the model would admit riskless debt, which would eliminate the adverse selection problem.Entrepreneurs have reservation value V; that is

25、, contracts are acceptable only if the residual claim has expected value V or higher. In a model of mature firm financing, V is most clearly interpreted as the value of assets-in-place, because this is the continuation value of the firm in the absence of new investment. Such an interpretation is val

26、id in entrepreneurial settings as well because without attracting financing the entrepreneur owns the existing assets outright. The key difference is one of magnitude. Compared to models of mature firms, in entrepreneurial settings the value of assets-in-place is small relative to other parameters.

27、The net present value of projects, V V K, is assumed to satisfyEVG V K 0 EVB V K. (1)Equation (1) justifies the nomenclature “good” and “bad.” The net present value of a project is positive if and only if the project is good. Finally, it is assumed that net present values satisfy(EG V K) + (1 )(EB V

28、 K) 0, (2)where is the proportion of good projects in the economy. Because net present values are positive (on average), the model admits pooling equilibrium.One source of capital is an uninformed investor who conducts a mechanical credit evaluation based on observable characteristics. This investor

29、 may be thought of as a proxy for the competitive commercial banking market. Consistent with this interpretation, it will be shown that this investor takes debt in equilibrium. Briefly, the intuition is that when one is uninformed, one solves the adverse selection problem in the traditional way. As

30、mentioned in the introduction, this solution is debt.An alternative source of capital is an investor endowed with technology that can evaluate project quality. This investor is referred to as a VC. Consistent with this identification, it will be shown that the VC takes high-powered contracts in equi

31、librium. Likewise, it needs to be shown that the VC actually employs the screening technology. A priori, this usage is not obvious. In particular, if the financial contract is very generous (if it leaves the VC with a large stake), then it may be profitable to forego the costly evaluation in favor o

32、f funding all projects. Such an outcome would benefit bad entrepreneurs, because they too would like to attract funding provided they can pool with good firms and thereby obtain mispriced financing. By limiting this pooling, costly due diligence effects a transfer from bad entrepreneurs to good entrepreneurs, and in the process, directs real investment toward better projects.Entrepreneurs seeking venture capital finance form a (randomly ordered) queue, and the VC sequentially evaluates them. For each entrepreneur, upon paying a cost C the VC receives a signal s G,