Venture Capital and Private Equity Contracting

Chapter 17. Home Bias

17.1. Introduction and Learning Objectives

Private equity markets are characterized by informational asymmetries and agency problems (see Chapter 2). In fact, the very existence of fund managers has been attributed to difficulty at screening high-tech investments for which there has been scant track record and pronounced problems of information asymmetries. In view of the informational problems and institutional aspects that characterize private equity markets, it is expected that fund managers will exhibit a “local bias” to mitigate information problems. Private equity fund managers, particularly those managing venture capital funds, are widely regarded as active value-added investors that spend a significant amount of ...