Venture capital financed investments in intellectual capital

The paper considers a new company in the IT industry, founded by a management team and partially financed by venture capital. Among the questions that the paper addresses are: how much venture capital should be acquired to help finance the development of the firm? How should a wish to grow, with the aim of making a breakthrough in the IT area, be balanced against the stockholders' wish to consume? The problem is studied as an optimal control problem with a random time horizon and we derive a series of prescriptions for investment and financial decisions. (c) 2005 Elsevier B.V. All rights reserved.