Entrepreneurial Finance: Strategy, Valuation, and Deal Structure
Chapter 12. Deal Structure: Addressing Information and Incentive Problems
Learning Objectives
After reading this chapter you will be able to:
• Determine how bringing in an investor, who shares proportionately in risk and return, affects the entrepreneur’s value of an opportunity
• Increase the value of an opportunity by designing a financial contract that shifts risk to diversified investors
• Evaluate how changing the relative shares of ownership between the entrepreneur and an investor affects the present value of each party’s investment
• Compare and evaluate financing alternatives that involve passive, active, and subsidized investors
• Identify the basic information and incentive problems that impact new ventures
• Understand how contracts and other mechanisms can address new venture information problems
• Identify the conditions when particular contractual responses to information problems would arise
• Explain the economic function of relational contracting, reputation capital, certification, signaling, and organizational design