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Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses

  • Steven N. Kaplan
  • Per Stromberg

We study the investment analyses of 67 portfolio investments by 11 venture capital (VC) firms. VCs consider the attractiveness and risks of the business, management, and deal terms as well as expected post-investment monitoring. We then consider the relation of the analyses to the contractual terms. Greater internal and external risks are associated with more VC cash flow rights, VC control rights; greater internal risk, also with more contingencies for the entrepreneur; and greater complexity, with less contingent compensation. Finally, expected VC monitoring and support are related to the contracts. We interpret these results in relation to financial contracting theories.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8764.

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Date of creation: Feb 2002
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Publication status: published as Kaplan, Steven N. and Per Stromberg. "Characteristics, Contracts, And Actions: Evidence From Venture Capitalist Analyses," Journal of Finance, 2004, v59(5,Oct), 2177-2210.
Handle: RePEc:nbr:nberwo:8764
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