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Financial contracting with strategic investors: Evidence from corporate venture capital backed IPOs

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  • Masulis, Ronald W.
  • Nahata, Rajarishi

Abstract

We analyze financial contracting in start-ups backed by corporate venture capitalists (CVCs). CVCs' strategic goals can economically hurt or benefit the start-ups, depending on product market relationships between start-ups and CVC parents. Empirically, start-ups receive funding from both complementary and competitive CVC parents. However, start-up insiders commonly limit the influence of competitive CVCs, awarding them lower board power, while retaining higher board representation for themselves. Second, lead CVCs receive lower board representation, indicating heightened concerns about their greater influence in start-ups' early stages. Finally, start-ups extract higher valuations from competitive CVCs, reflecting greater moral hazard problems. Overall, CVC strategic objectives affect their early inclusion in VC syndicates, their control rights and share pricing.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 18 (2009)
Issue (Month): 4 (October)
Pages: 599-631

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Handle: RePEc:eee:jfinin:v:18:y:2009:i:4:p:599-631

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Web page: http://www.elsevier.com/locate/inca/622875

Related research

Keywords: Venture capital Corporate venture capital Strategic investing Financial contracting Product market relationships;

References

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Citations

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Cited by:
  1. Da Rin, M. & Hellmann, T. & Puri, M.L., 2011. "A Survey of Venture Capital Research," Discussion Paper 2011-044, Tilburg University, Tilburg Law and Economic Center.
  2. Bing Guo & Yun Lou & David Pérez-Castrillo, 2012. "Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital-backed Start-ups," Working Papers 602, Barcelona Graduate School of Economics.
  3. James A. Brander & Qianqian Du & Thomas F. Hellmann, 2010. "The Effects of Government-Sponsored Venture Capital: International Evidence," NBER Working Papers 16521, National Bureau of Economic Research, Inc.

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