A Theory of the Capitalization of Start-ups
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Emborg Danielsen, Tommy1, Forfatter
Norman Sørensen, Peter2, Vejleder
1Det Samfundsvidenskabelige Fakultet, Københavns Universitet, København, Danmark, diskurs:7001              
2Økonomisk Institut, Det Samfundsvidenskabelige Fakultet, Københavns Universitet, København, Danmark, diskurs:7014              
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Ukontrollerede emneord: Start-ups, IPOs, capitalization.
 Abstract: This paper is examining some direct effects of allowing start-ups to undertake an Initial Public Offering (IPO). For this purpose a theoretical model is developed. When lowering the costs of going public, the model finds that the expected value to the entrepreneur will always increase, while it can be lowering the expected payoff to other risk capital investors. In the model, the other risk capital investors are: A venture capitalist, an acquirer and atomistic investors in the IPO market. If the venture capitalist is risk neutral the atomistic investors in the IPO market will always loose ex post. However when considering a mark-up demand from the venture capitalist, there can be situationswhere the atomistic investors avoid being victims of the winners curse. Since the model is portraying a specific point in time the results are not applicable when considering the long run effects of loosening the IPO restrictions for start-ups.
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Bogmærk denne post:
 Type: Speciale
Alternativ titel: When Allowing for IPOs in Early Stages
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Sprog: English - eng
 Datoer: 2013-05-07
 Sider: -
 Publiceringsinfo: København : Københavns Universitet
 Indholdsfortegnelse: 1 Introduction 1
1.1 Early IPOs and JOBS 3
1.2 Literature and inspiration. 4
2 The Model 8
2.1 The set-up.8
2.2 Technology approach10
2.3 The Players. 10
2.3.1 The Entrepreneur.11
2.3.2 The Venture Capitalist 12
2.3.3 The Acquiring Company.12
2.3.4 The Initial Public Offering Market13
2.4 Describing the parameters. 14
2.5 Describing the variables.17
2.6 The chronicles of the process18
2.7 Expected values 19
2.8 Reservation prices and bids20
2.8.1 When the venture capitalist wins the auction 22
2.8.2 When the acquiring company wins the auction.23
2.8.3 When the entrepreneur chooses to go public 24
2.8.4 Equilibrium table.24
2.9 Assumptions of the main model.25
2.9.1 Risk neutrality 25
2.9.2 Design mechanism. 28
2.9.3 Utility from ownership 29
2.9.4 The total takeover bid 29
2.9.5 No liquidity demand30
2.9.6 Linear relationship between T and I30
2.9.7 Transparency31
2.9.8 Time perspectives.31
2.9.9 Alternative options. 32
3 Analysis of the main model 34
3.1 The noise and correction parameters 35
3.2 The synergy and implementation effects. 41
3.3 The cost of going public.47
3.4 The utility of the entrepreneur 50
3.5 Efficiency.51
4 An extension of the main model 52
4.1 New setting. 52
4.2 Changes to the model53
4.3 Equilibria and bidding stragies (mark-up extension) 54
4.4 Analysis of M55
5 Discussion and conclusion 60
5.1 Discussion of the results.60
5.2 Conclusion.65
6 Appendices 68
6.1 Appendix: Calculations supporting prop. d68
6.2 Appendix: Share ratios and bids related to y 69
6.3 Appendix: Calculations supporting prop. e70
6.4 Appendix: Supporting prop. g 70
6.5 Appendix: Supporting prop. j and k. 71
6.6 Appendix: Calculations supporting prop. l72
6.7 Appendix: Calculations supporting prop. m 72
 Note: -
 Type: Speciale
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