Corporate Venture Capital Contracts

Abstract:     
This paper introduces a dataset of securities used by US and Canadian venture capitalists (VCs) in seed, early and expansion stage Canadian entrepreneurial firms spanning the period 1991-2004. The data indicate Canadian limited partnership VCs are more likely to use common equity and convertible securities than Canadian corporate VCs, while Canadian corporate VCs are more likely to use non-convertible debt than Canadian limited partnership VCs. Similar patterns in security design are observed in the data in this paper for cross-border US limited partnership and corporate VC investments in Canadian entrepreneurial firms. Related evidence also indicates very similar contracting practices for European corporate VC investments. The securities used offer one explanation as to why corporate VC performance is typically less successful than limited partnership VC performance. The data also challenge the conventional wisdom that VCs always use convertible preferred equity.

Number of Pages in PDF File: 24

Keywords: Corporate Venture Capital, Financial Contracting

JEL Classification: G24, G31, G32, G28, G33, G34, G35, G38

Accepted Paper Series