Abstract

http://ssrn.com/abstract=1688982
 
 

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The New Exit in Venture Capital


Darian M. Ibrahim


William & Mary Law School

October 7, 2010

Vanderbilt Law Review, Vol. 65, 2012
University of Wisconsin Legal Studies Research Paper No. 1137

Abstract:     
This Article examines a third exit option in venture capital to supplement IPOs and trade sales: secondary markets for the sale of individual ownership interests in start-ups and venture capital (VC) funds. While investors can readily buy shares in publicly-traded companies, until recently they have been unable to own a piece of private start-ups like Facebook or Twitter without working there or investing in exclusive VC funds. Now that venture capital has become a $400 billion worldwide asset class, however, start-up stock and limited partnership interests in VC funds have begun trading in private secondary markets. These secondary markets offer initial investors a new path to liquidity, offer buyers access to a previously untapped class of assets, and produce governance benefits for traded firms. The realization of these benefits in venture capital should lead to a net increase in the total amount of entrepreneurial activity. Given the surplus that entrepreneurial activity produces for society, VC secondary markets should be studied by academics and encouraged by policy makers. This Article is the first to study VC secondary markets and the issues they implicate in law and economics analysis. The Article examines VC secondary markets in their present state and contemplates their further development.

Number of Pages in PDF File: 47

Keywords: Venture Capital, Exit, Lock In, Illiquidity, Secondary Market, Agency Costs, SharesPost, SecondMarket

JEL Classification: G24, G32, K22, M13

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Date posted: October 8, 2010 ; Last revised: September 27, 2013

Suggested Citation

Ibrahim, Darian M., The New Exit in Venture Capital (October 7, 2010). Vanderbilt Law Review, Vol. 65, 2012; University of Wisconsin Legal Studies Research Paper No. 1137. Available at SSRN: http://ssrn.com/abstract=1688982

Contact Information

Darian M. Ibrahim (Contact Author)
William & Mary Law School ( email )
South Henry Street
P.O. Box 8795
Williamsburg, VA 23187-8795
United States
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