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Legality and venture capital fund manager compensation

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  • Douglas Cumming
  • Sofia Johan

Abstract

This paper introduces a new dataset from 50 venture capital and private equity funds from 17 countries in Africa, North and South America, Europe and Australasia. We analyse compensation in regard to fixed management fees (as a percentage of fund size), performance fees (the carried interest percentage), clawbacks (reduced fees for poor performance), and cash versus share distributions (payment to institutional investors). We control for a variety of factors including market conditions, institutional investor and fund manager characteristics. The data indicate that legal conditions by far have the most robust statistically and economically significant effect on compensation across countries: fixed fees are higher and performance fees are lower in countries with poor legal conditions; clawbacks are more likely in countries with poor legal conditions; and cash-only distributions are much more likely to be mandated among offshore funds.

Suggested Citation

  • Douglas Cumming & Sofia Johan, 2008. "Legality and venture capital fund manager compensation," Venture Capital, Taylor & Francis Journals, vol. 11(1), pages 23-54, June.
    • Handle: RePEc:taf:veecee:v:11:y:2008:i:1:p:23-54
    DOI: 10.1080/13691060802351206
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    References listed on IDEAS

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    1. Keuschnigg, Christian, 2003. "Optimal Public Policy for Venture Capital Backed Innovation," CEPR Discussion Papers 3850, C.E.P.R. Discussion Papers.
    2. Schmidt, Daniel & Wahrenburg, Mark, 2003. "Contractual relations between European VC-funds and investors: The impact of reputation and bargaining power on contractual design," CFS Working Paper Series 2003/15, Center for Financial Studies (CFS).
    3. Christian Keuschnigg, 2003. "Public Policy and Venture Capital Backed Innovation," CESifo Working Paper Series 1066, CESifo.
    4. Douglas Cumming & Uwe Walz, 2010. "Private equity returns and disclosure around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(4), pages 727-754, May.
    Full references (including those not matched with items on IDEAS)

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