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. Exacerbating 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 financing 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 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 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 equity. 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 refers. By directly revealing the project’s quality, due diligence reduces information asymmetry between entrepreneurs and the VC. By contrast, if quality were signaled—the traditional solution to the adverse selection problem—costly due diligence would be unnecessary since there would be no more information 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 entrepreneurial financing markets, and so costly due diligence dominates. The “cost” of sign aling 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 pool at nearly any cost. As the analysis shows, securities is unattractive enough to drive out bad entrepreneurs—and thus to serve as a credible signal—tend to be unattractive to good entrepreneurs as well. Costly due diligence emerges as the preferred solution.

As testament to the empirical importance of 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 of 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-like) 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 screen 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.