The case is set in Denmark in 2019. It describes the seed funding of Leggso, a cleantech start-up that was developing a new technology for turning lignin (wood scrap) into liquid biofuel. This business clearly had a very large potential upside. The venture, a university spin-off developing within the Danish Cleantech Hub ecosystem, faced several major uncertainties: IP strength, managerial skills, market acceptance, competition. Together with its being a seed stage opportunity, this made investing in the company a riskier choice than usual for Patryk Kyllens, senior investment manager at NORDIA, a VC firm active in the Danish Cleantech Hub ecosystem that had entered negotiations with Leggso. Patryk crafted a syndicated tranched seed round to make the deal appealing to the Supervisory Board of NORDIA. Tranching meant Leggso would now receive a first tranche and would have to satisfy a set of milestones to access the second tranche, twelve months ahead. The deal was signed in April 2018. In March of 2019, Leggso found itself failing one of the milestones. How should Patryk manage this situation? Should he renegotiate and keep investing, or call it a day?

Using a comprehensive survey, we show that investors with a larger capital allocation to private equity are more specialized−measured by the degree to which the investor focuses on private equity rather than other classes of investments−and have a wider scope of due diligence and investment activities. Other investor characteristics (experience, type, location, compensation structure, number of funds under management) play no role. In particular, endowments are not special according to the survey measures. These results are consistent with the changing LP–GP relationship in private equity as capital is increasingly concentrated in the hands of large investors.

We provide a new theory of the role of banks as catalysts for industrialization. In their influential analysis of continental European industrialization, Gerschenkron and Schumpeter argued that banks promoted the creation of new industries. We formalize this role of banks by introducing financial intermediaries into a “big push” model. We show that banks may act as catalysts for industrialization provided they are sufficiently large to mobilize a critical mass of firms and that they possess sufficient market power to make profits from coordination. The theory provides simple conditions that help explain why banks seem to play a creative role in some but not in other emerging markets. The model also shows that universal banking helps to reduce the cost of acting as catalyst. Journal of Economic Literature Classification Numbers: G21, N2, O14, O16.

We examine the effect of trust on financial investment and contracting decisions in a micro-economic environment where trust is exogenous. Using hand-collected data on European venture capital, we show that the Eurobarometer measure of trust among nations significantly affects investment decisions. This holds even after controlling for investor and company fixed effects, geographic distance, information and transaction costs. The national identity of venture capital firms' individual partners further contributes to the effect of trust. Education and work experience reduce the effect of trust but do not eliminate it. We also examine the relationship between trust and sophisticated contracts involving contingent control rights and find that, even after controlling for endogeneity, they are complements, not substitutes.