It considers I nnovation Choices and Venture Capita l exits (IPO vs trade sale) in a setting in which entrepreneurs derive private benefits from staying independent, which is better guaranteed under an IPO . The entrepreneur has incentives to distort the innovation strategy in order to induce the Venture Capitalist to bring the company public. The analysis generates a number of empirical implications for the link between innovation, valuation, Venture Capita l exit routes and market structure.

This Article analyses how start-ups financed by Venture Capital choose their innovation strategy based on the investor's exit preferences and thereby form different outcomes in the product market.