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More specifically, regarding financing strategies, suppose the wait-and-see strategy gives an instantaneous probability of δ > 0 (constant hazard rate) for finding one investor.7 The bargaining process is such that VC makes a take-it-or-leave-it offer to the entrepreneur. The entrepreneur's expected bargaining power is denoted by ρ1(T) and her probability of finding an investor by w(T). This limited bargaining power stems from the fact that VCs are ex post differentiated (although symmetric as long as no match is found).
As for the just-do-it strategy, suppose this strategy gives a constant hazard rate of Δ > 0 if the amount k is invested at t = 0 and this amount is then sunk. In this case, the entrepreneur's bargaining power and the probability of achieving the intermediate milestone is denoted by ρ2 and p(T), respectively. Given the assumptions made, ρ2 = 1 and p(T) = ΔT. Let us only consider cases for which p(T) < 1, given that the E starts the project with limited resources. This can also be motivated by the fact that the entrepreneur still needs to spend some time and effort in raising funds, while at the same time working on her project. We further assume that relative to the previous strategy, the entrepreneur needs to exert more effort under the just-do-it strategy. Effort cost is denoted by c > 0, while for S1 it is normalized to zero.8 Table 1 presents an overview of all the variables used throughout the article.