Small Business Economics

, Volume 46, Issue 3, pp 391–405 | Cite as

Cherry-picking or frog-kissing? A theoretical analysis of how investors select entrepreneurial ventures in thin venture capital markets

  • Fabio Bertoni
  • Diego D’Adda
  • Luca Grilli


We propose a formal model that analyzes which entrepreneurial ventures actively seek and subsequently obtain venture capital (VC) financing in thin VC markets. The model shows that in thin VC markets, (1) VC investors will invest in companies in need (frog-kissing) rather than in best performers (cherry-picking), and (2) the best performing ventures will self-select out of the market for VC. These conclusions are in line with the results from the literature, which note that in Europe many entrepreneurial firms do not actively seek VC investment and that VC investors do not appear to possess the same cherry-picking ability that they have in the US.


High-tech entrepreneurship Venture capital Sorting mechanisms Self-selection out 

JEL Classifications

L26 G24 M13 



We are grateful to two anonymous referees and to Silvio Vismara, the Associate Editor of the journal. We also thank for their comments on early versions of this paper: Massimo G. Colombo, Ramy Elitzur, Terttu Luukkonen, Sophie Manigart, Mariana Mazzucato, José Martí Pellón, Tereza Tykvová, Elisa Ughetto, Mike Wright, and the participants to the final VICO conference (Stresa, Italy), the 37th EARIE Annual Conference (Istanbul, Turkey), the 2010 Zvi Griliches Research Summer Seminar in the Economics of Innovation (Barcelona, Spain) and the XXI AiIG annual meeting (L’Aquila, Italy). We acknowledge support from the Venture Fun project promoted by the EU PRIME Network of Excellence, and the VICO project funded under the European FP7 (SSH-2007-1.2.3-G.A. 217485).


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of Economics, Finance and Control, ReCEntFinEMLYON Business SchoolEcullyFrance
  2. 2.Dipartimento di Ingegneria dell’InformazioneUniversità Politecnica delle MarcheAnconaItaly
  3. 3.Department of Management, Economics and Industrial EngineeringPolitecnico di MilanoMilanItaly

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