Financial Contracts and Venture Capitalists' Value-Added

COMPANION TO VENTURE CAPITAL, Douglas J. Cumming, ed., Chapter 8, Wiley, Forthcoming

Posted: 2 Mar 2009

Date Written: March 2, 2009

Abstract

The objective of this chapter is to review the sources of value-added of venture capitalists, and to understand what contractual tools can help them to take relevant decisions and enhance firm value. The chapter is organized as follows. The first section rapidly surveys the literature on the forms and means of value-added of venture capitalists. The following section develops a model of start-up financing to investigate the advising role of venture capitalists. The analysis of the model first provides a comparison of the efficiency of venture capital advice compared to pure consultant advice. It then studies the shape of the optimal financial contract between entrepreneurs and venture capitalists. The last section discusses to what extent the results presented in the model can explain observed patterns of venture capital.

Keywords: venture capital, financial contracts, value-added, double-sided moral hazard

JEL Classification: G24, G32

Suggested Citation

Casamatta, Catherine, Financial Contracts and Venture Capitalists' Value-Added (March 2, 2009). COMPANION TO VENTURE CAPITAL, Douglas J. Cumming, ed., Chapter 8, Wiley, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1351724

Catherine Casamatta (Contact Author)

TSE-University of Toulouse 1 ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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