Journal of Corporate Finance Vol. 75 2022
Pay for performance, partnership success, and the internal organization of venture capital firms
Abstract
We show how the structure of partner incentives and decision processes within a venture capital firm contribute to fund performance and partnership success. Optimal capital allocation during staged financing requires that partner incentives encourage cooperation by linking a partner's compensation to the return on the entire fund rather than return on the investment sponsored by an individual partner. Incentives for individual performance are optimally provisioned by a higher profit share in a subsequent fund. Our paper provides an economic underpinning to empirical observations about partner pay and the internal organization of venture capital firms.
- DOI
- 10.1016/j.jcorpfin.2022.102246
- Volume
- 75
- Pages
- 102246
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref