Abstract

http://ssrn.com/abstract=1475347
 
 

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Changing the Nexus: The Evolution and Renegotiation of Venture Capital Contracts


Ola Bengtsson


Lund University School of Economics and Management; Research Institute of Industrial Economics (IFN)

Berk A. Sensoy


Ohio State University - Fisher College of Business

April 26, 2013

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
Fisher College of Business Working Paper No. 2009-03-019
Charles A. Dice Center Working Paper No. 2009-19

Abstract:     
We study the evolution and renegotiation of the cash flow rights that venture capitalists (VCs) obtain in their portfolio companies. When company performance between financing rounds is poor, subsequent contracts contain stronger VC cash flow rights, and existing VCs tend to either give new VCs senior claims or forfeit their existing rights altogether. These results are consistent with the importance of financing problems between different VCs, and with theory predicting that financing frictions worsen with poor performance. A consequence is that VC cash flow rights are frequently significantly diluted before exit, implying that VC investments are riskier than previously estimated.

Number of Pages in PDF File: 46

Keywords: Venture capital, financial contracting, renegotiation, debt overhang

JEL Classification: G24, L14

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Date posted: September 21, 2009 ; Last revised: May 1, 2013

Suggested Citation

Bengtsson, Ola and Sensoy, Berk A., Changing the Nexus: The Evolution and Renegotiation of Venture Capital Contracts (April 26, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; Fisher College of Business Working Paper No. 2009-03-019; Charles A. Dice Center Working Paper No. 2009-19. Available at SSRN: http://ssrn.com/abstract=1475347 or http://dx.doi.org/10.2139/ssrn.1475347

Contact Information

Ola Bengtsson (Contact Author)
Lund University School of Economics and Management ( email )
P.O Box 7080
Lund
Sweden
HOME PAGE: http://www.olabengtsson.com
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
Berk A. Sensoy
Ohio State University - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States

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