Law, finance, and venture capital: The cost of capital for high-tech firms

We use data from a professionally-conducted survey of high-technology managers to examine international variation in private equity contracting and cost of capital. Employing new variables and analyzing hundreds of financing rounds in the U.S., Europe, and Israel, we find that the sophistication of investors and the number of nonpecuniary services they provide are significantly associated with the ownership ratio (amount raised/valuation), but that funding rounds in the United States do not receive lower ownership ratios than elsewhere. We also find that useful patents are associated with a lower cost of capital, and that the institutional environment for entrepreneurialfinance is related to exit strategy and valuation.