Conditional Allocation of Control Rights in Venture Capital Finance
When a young entrepreneurial firm matures, it is often necessary to replace the founding entrepreneur by a professional manager. This replacement decision can be affected by the private benefits of control enjoyed by the entrepreneur which gives rise to a conflict of interest between the entrepreneur and the venture capitalist. We show that a combination of convertible securities and contingent control rights can be used to resolve this conflict efficiently. This contractual arrangement is frequently observed in venture capital finance.
|Date of creation:||Mar 2006|
|Date of revision:|
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- Schmidt, Klaus M., 1999.
"Convertible Securities and Venture Capital Finance,"
CEPR Discussion Papers
2317, C.E.P.R. Discussion Papers.
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