Techstar's Supply Chain Operations with a Two-Stage VC Financing

We investigate the operational and economic ramifications of a Venture Capitalist (VC) funding a technology superstar (abbr. techstar) who manages a startup. The VC, who can be a generalist or a specialist, receives the techstar’s equity in return for the funding and market expansion advice to the Supply Chain (SC). The VC decides the total amount to invest in the startup over two stages (two periods with possible milestones that the techstar has to achieve to receive the second stage funding, while the techstar determines how to split the total amount across the two periods. We formulate a two-period Stackelberg game and investigate: (i) Which type of VC should the techstar choose? (ii) Whether the techstar should accept the milestone stipulated by the VC for continued funding? (iii) Which SC structure: centralized (CSC) or decentralized (DSC), should the techstar choose for maximizing her profit, market share, and terminal equity. We find that the techstar can achieve best performance by choosing a specialist VC, adopting a CSC structure and accepting the milestone. Under this scenario, the techstar can maximize either profit or market share (but not both), retain higher terminal equity by exploiting the milestone clause, and adopt a SC operational strategy to deter the competitor. Our study bridges the gap between SC operations and VC financing, and provides the techstar guidance for making better decisions regarding the VC’s investment