What Do Entrepreneurs Pay for Venture Capital Affiliation? Knowledge@Wharton April 21-May 4, 2004

[Dave Farber <dave () farber net>]

What Do Entrepreneurs Pay for Venture Capital Affiliation?
A software services company looking for an early-stage round of investment 
from venture capital funds gets four offers. Two of them value the company 
at $10 million, one at $12.5 million and one at $20 million. Any of the 
offers would net the software company approximately $8 million in cash 
inflows. It would seem to be a no-brainer. Accept the investment at the 
highest so-called "pre-money" valuation. So why did the company pick the 
$12.5 million offer? It's a question that Wharton management professor 
David Hsu explores in a recent paper measuring the impact of "intangibles" 
- such as reputation and access to networks - on VC relationships with 
entrepreneurs.
http://knowledge.wharton.upenn.edu/article/976.cfm 

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