Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses
Swedish House of Finance
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
AFA 2002 Atlanta Meetings
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.
Number of Pages in PDF File: 51
JEL Classification: G24, G32
Date posted: December 28, 2001
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