Title: Assessing the maximum expendable quota for a milestone financing provided by a venture capitalist

Authors: Thomas Hering; Christian Toll; Polina K. Kirilova

Addresses: Fern-Universität Hagen, Universitätsstraße 11, D-58084 Hagen, Germany ' Fern-Universität Hagen, Universitätsstraße 11, D-58084 Hagen, Germany ' Fern-Universität Hagen, Universitätsstraße 11, D-58084 Hagen, Germany

Abstract: In the expansion phase, young ventures often face a financing bottleneck. Initial company owners seek equity partners, usually in their (extended) network. In this paper, we demonstrate how the state marginal quota model under realistic imperfect market conditions can assist company founders striving for venture capital financed growth in the expansion phase. Applying this model, initial company owners can determine the maximum expendable percentage of ownership for a given milestone financing. This paper also shows that under unrealistic perfect market conditions, there is no apparent reason for venture capital to exist.

Keywords: business valuation; venture capital; entrepreneurial business; expansion phase; investment; milestone financing; capital dilution; imperfect markets; state marginal quota model; maximum expendable quota; young ventures; financing bottleneck; entrepreneurship.

DOI: 10.1504/IJEV.2016.074403

International Journal of Entrepreneurial Venturing, 2016 Vol.8 No.1, pp.102 - 117

Available online: 28 Jan 2016 *

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