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What do economists tell us about venture capital contracts?

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  • Tykvová, Tereza

Abstract

Venture capital markets are characterized by multiple incentive problems and asymmetric information in an uncertain environment. All kinds of agency problems are present: moral hazard, adverse selection, hold-up problems, window dressing, etc. Entrepreneurs and venture capitalists enter into contracts that influence their behavior and mitigate the agency costs. In particular, they select an appropriate kind and structure of financing and specify the rights as well as the duties of both parties. The typical features of venture capital investments are: an intensive screening and evaluation process, an active involvement of venture capitalists in their portfolio companies, a staging of capital infusions, the use of special financing instruments such as convertible debt or convertible preferred stock, syndication among venture capitalists, or a short investment horizon. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 00-62.

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Date of creation: 2000
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Handle: RePEc:zbw:zewdip:5345

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Keywords: Venture Capital; Agency Costs;

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Cited by:
  1. Cécile Carpentier & Jean-Marc Suret, 2004. "Le placement privé et la dimension réglementaire du financement des entreprises," CIRANO Working Papers 2004s-51, CIRANO.
  2. Cécile Carpentier & Jean-François L'Her & Jean-Marc Suret, 2008. "Stock Exchange Markets for New Ventures," CIRANO Working Papers 2008s-12, CIRANO.
  3. Loane, Sharon & Bell, Jim & Cunningham, Isobel, 2014. "Entrepreneurial founding team exits in rapidly internationalising SMEs: A double edged sword," International Business Review, Elsevier, vol. 23(2), pages 468-477.
  4. Braunerhjelm, Pontus & Parker, Simon, 2010. "Josh Lerner: Recipient of the 2010 Global Award for Entrepreneurship Research," Working Paper Series in Economics and Institutions of Innovation 233, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  5. Timo Fischer & Gaétan de Rassenfosse, 2011. "Debt Financing of High-growth Startups," DRUID Working Papers 11-04, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  6. Hirsch, Julia, 2006. "Public policy and venture capital financed innovation: A contract design approach," CFS Working Paper Series 2006/29, Center for Financial Studies (CFS).
  7. Dominique Dufour & Eric Nasica & Dominique Torre, 2013. "Syndication in private equity industry: comparing the strategies of independent and captive venture capitalists," Working Papers halshs-00853695, HAL.

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