The most common method of allocation is equal distribution of resources, irrespective of the need or ability of the individuals in a group (Camerer and Thaler, 1995). Psychologists suggest that equal distribution requires the least cognitive effort and hence it is the starting point for allocation of resources in a group. Economists, on the other hand, point out that any distribution that ignores the relative ability of the actors is sub-optimal. In this project I study the relationship between the near equal and unequal distribution of incentives among investors in a Venture Capital (VC) syndicate. In nearly 13,000 rounds of syndicated deals from 1980 to 2004, I find that start-ups that receive more unequal investments are more likely to have a subsequent round of funding or an IPO or an M & A event.
"EQUITY TRAPS: NEAR EQUAL DISTRIBUTION OF CASH FLOW INCENTIVES AMONG INVESTORS IN VENTURE CAPITAL SYNDICATES AND THE PERFORMANCE OF START-UP AND VC FUNDS (SUMMARY),"
Frontiers of Entrepreneurship Research: Vol. 29
, Article 9.
Available at: http://digitalknowledge.babson.edu/fer/vol29/iss3/9