Venture Capital Exit Rights

34 Pages Posted: 5 Jun 2008 Last revised: 18 Dec 2010

See all articles by Carsten Bienz

Carsten Bienz

Norwegian School of Economics (NHH)

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Leibniz Institute for Financial Research SAFE

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Date Written: February 1, 2010

Abstract

We investigate when and how venture capital contracts use exit rights such as drag-along and tag-along rights. Utilizing a data set of venture capital contracts from Germany, we find that almost all contracts allocate exit rights to the venture capitalist (VC) rather than to the entrepreneur. In our data set, the vast majority of exit rights deal with the sale of the entire company to a strategic investors rather than with initial public offerings. We show that venture capital contracts include exit rights to mitigate potential hold-up problems of the VC in the case of exit.

Keywords: venture capital, corporate governance, empirical contract theory, hold-up, exit rights, trade-sale rights

JEL Classification: G24, G34, D80

Suggested Citation

Bienz, Carsten and Walz, Uwe, Venture Capital Exit Rights (February 1, 2010). Available at SSRN: https://ssrn.com/abstract=1140128 or http://dx.doi.org/10.2139/ssrn.1140128

Carsten Bienz (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen
Norway

Uwe Walz

Goethe University Frankfurt - Institute of Economics ( email )

Postfach 81
D-60054 Frankfurt
Germany

Center For Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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