We present an analysis of venture capital,going-public decisions,and IPO underpricing. An entrepreneur can either commercialize an innovation --- implement a project --- himself or sell it to a "long purse"-I.e. a firm with the resources to undertake the project. Entrepreneurs that have both high quality innovations and good managerial skills implement their innovations themselves --- with financing from the public equity market --- otherwise,the innovations are sold. While venture capitalists and angel investors may provide financing in the conception phase of projects,venture capitalist also help entrepreneurs develop their managerial skills and the organizational infrastructure needed to implement their projects. A variety of empirical implications follow from our model.
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