Abstract
Our purpose is to find the optimal exit time of a venture capitalist (VC) under profit flow uncertainty. We consider that the VC sells his holding in two steps: at the offer price at the date of the initial public offering (IPO) taking into account the underpricing, then at the expiration of the lock-up period. We use a real options approach when the profit flow of the venture capital backed company follows an arithmetic Brownian motion. We find a closed-form solution of the threshold at which it is optimal for the VC to exit and also determine the expected first hitting time.
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