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Why is it likely that venture capital is disbursed in installments, rather than issuing all necessary...

Why is it likely that venture capital is disbursed in installments, rather than issuing all necessary funds at once?

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Answer #1

Venture capital is disbursed in installments due to the following reasons:

  1. If venture capital is disbursed all at once, all the capital get locked into the individual project and incase the project fails it will be a loss to venture capitalist of the lumpsum amount. Therefore, to reduce the chances of loosing the capital, it is disbursed in installments.
  2. Secondly, to reduce the potential agency problem, venture capitalist disburse the capital in installments. If the capital is disbursed in lumpsum, entrepreneur will find less related to the venture capitalist and entrepreneur will not feel accountable to the venture capitalist. Thus, venture capital is disbursed in installments so that venture capitalist feel accountability on part of entrepreneur.
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