Principal-Agent Problems in Venture Capital Finance

Capital market frictions and especially asymmetric information pose significantproblems concerning the financing of young growth companies. I first blind outthe existence of any intermediaries and use this simplified situation to systematicallyshow these financing problems and relate them to their underlying theories.I then give an overview of potential mitigations for these problems, consideringstatic mitigations in more detail and then giving an outlook at dynamic mitigations.Using the results of this analysis I reintroduce financial intermediariessuch as venture capitalists to show their value to the improvement of the situation.The paper intends to give an overview of the most important aspects to thetopic, showing its relevance to researchers as well as practitioners.