Abstract

http://ssrn.com/abstract=265297
 
 

Citations (84)



 


 



Venture Capitalists as Principals: Contracting, Screening, and Monitoring


Steven N. Kaplan


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Per Strömberg


Swedish House of Finance

April 2001

NBER Working Paper No. w8202

Abstract:     
Theoretical work on the principal-agent problem in financial contracting focuses on the conflicts of interest between an agent / entrepreneur with a venture that needs financing, and a principal / investor providing funds for the venture. Theory has identified three primary ways that the investor / principal can mitigate these conflicts - structuring financial contracts, pre-investment screening, and post-investment monitoring and advising. In this paper, we describe recent empirical work and its relation to theory for one prominent class of principals venture capitalists (VCs). The empirical studies indicate that VCs attempt to mitigate principal-agent conflicts in the three ways suggested by theory. The evidence also shows that contracting, screening, and monitoring are closely interrelated. In screening, the VCs identify areas where they can add value through monitoring and support. In contracting, the VCs allocate rights in order to facilitate monitoring and minimize the impact of identified risks. Also, the equity allocated to VCs provides incentives to engage in costly support activities that increase upside values, rather than just minimizing potential losses. There is room for future empirical research to study these activities in greater detail for VCs, for other intermediaries such as banks, and within firms.

Number of Pages in PDF File: 14

working papers series


Download This Paper

Date posted: March 31, 2001  

Suggested Citation

Kaplan, Steven N. and Strömberg, Per, Venture Capitalists as Principals: Contracting, Screening, and Monitoring (April 2001). NBER Working Paper No. w8202. Available at SSRN: http://ssrn.com/abstract=265297

Contact Information

Steven Neil Kaplan (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Per Stromberg
Swedish House of Finance ( email )
Drottninggatan 98
111 60 Stockholm
Sweden

Feedback to SSRN


Paper statistics
Abstract Views: 2,786
Downloads: 129
Download Rank: 125,086
Citations:  84
Paper comments
No comments have been made on this paper

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.641 seconds