Staged Financing of Start-ups

Abstract

From a theoretical perspective, staged financing of start-ups mainly serves to reduce agency risks for investors dealing with founders. This risk reduction is partly offset by the transaction costs caused by staged financing. From the perspective of founders, staging can reduce the cost of equity, but it also increases the share of external company and market risks they have to bear. Our empirical study of a sample of German start-ups confirms the importance of transaction costs and shifting external risk for staging decisions, but does not support agency theoretical explanations of staged financing.