A Control Theory of Venture Capital Finance

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A Control Theory of Venture Capital Finance

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Berglof, Erik

Abstract

This article analyzes how an entrepreneur and an external investor allocate revenues and control among themselves in a venture capital relationship, given that they want to liquidate their holdings in the future. Within an incomplete contracting framework we generate contractual arrangements that closely resemble those observed in venture capital markets. In particular, we explain the predominance of preferred stock and convertible instruments. Copyright 1994 by Oxford University Press.

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Article provided by Oxford University Press in its journal Journal of Law, Economics and Organization.

Volume (Year): 10 (1994)
Issue (Month): 2 (October)
Pages: 247-67
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Handle: RePEc:oup:jleorg:v:10:y:1994:i:2:p:247-67

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Ambec, S., 2004. "On the governance of start-ups," Working Papers 200406, Grenoble Applied Economics Laboratory (GAEL). [Downloadable!]
Chemla, Gilles & de Bettignies, Jean-Etienne, 2003. "Corporate Venture Capital: The Upside of Failure and Competition for Talent," CEPR Discussion Papers 4139, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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- J.E. de Bettignies & Gilles Chemla, 2003. "Corporate Venture Capital: The Upside of Failure and Competition for Talent," THEMA Working Papers 2003-45, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
Andrea Schertler, 2000. "Venture Capital Contracts: A survey of the recent literature," Kiel Working Papers 1017, Kiel Institute for the World Economy. [Downloadable!]
Pia Weiss, 2002. "A Note on Firms' Strategic Behaviour During an IPO," Microeconomics 0201003, EconWPA. [Downloadable!]
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Christian Keuschnigg, 2003. "Optimal Public Policy For Venture Capital Backed Innovation," University of St. Gallen Department of Economics working paper series 2003 2003-09, Department of Economics, University of St. Gallen. [Downloadable!]
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- Keuschnigg, Christian, 2003. "Optimal Public Policy for Venture Capital Backed Innovation," CEPR Discussion Papers 3850, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Schmidt, Klaus M., 1999. "Convertible Securities and Venture Capital Finance," CEPR Discussion Papers 2317, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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- Schmidt, Klaus M., 1999. "Convertible Securities and Venture Capital Finance," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Klaus M. Schmidt, 2003. "Convertible Securities and Venture Capital Finance," Journal of Finance, American Finance Association, vol. 58(3), pages 1139-1166, 06. [Downloadable!] (restricted)
Gebhardt, Georg & Schmidt, Klaus M., 2006. "Conditional Allocation of Control Rights in Venture Capital Firms," CEPR Discussion Papers 5758, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Bergemann, D. & Hege, U., 1997. "Venture capital financing, moral hazard, and learning," Discussion Paper 108, Tilburg University, Center for Economic Research. [Downloadable!]
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Hellmann, Thomas F., 2002. "IPOs, Acquisitions and the Use of Convertible Securities in Venture Capital," Research Papers 1702r, Stanford University, Graduate School of Business. [Downloadable!]
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Dessi, Roberta, 2004. "Start-up Finance, Monitoring and Collusion," IDEI Working Papers 264, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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