LAUSR

This paper finds evidence that the market for follow-on capital discourages risk taking by venture capital fund managers. The amount of follow-on capital raised by venture capitalists is concave with respect to current fund performance. In addition, managers with less consistent performance are slower, and less likely, to raise a follow-on fund. Venture capitalists adjust their investment strategy to balance fundraising incentives against the incentive to pursue risk provided by carried interest. The findings are consistent with models of career concerns, where an agent's compensation is designed to (partially) offset the implicit incentives created by future employment opportunities.