Investor Opportunism and Governance in Venture Capital

Abstract

There is a risk of ex post opportunism between entrepreneurs and investors in firms financed by venture capital (VC). Entrepreneurs and VC investors have different interests with respect to numerous decisions, such as whether to replace the CEO or obtain additional financing. VC investors, who often hold substantial control rights in startup firms, may use their position opportunistically - causing a startup firm to take actions that benefit the VCs at the expense of the firm as a whole. This book chapter summarizes the existing literature on VC opportunism in three settings: (i) CEO replacement, (ii) Later-round financing, and (iii) VC exit.

Keywords: Opportunism, Venture Capital, Corporate Governance

JEL Classification: G24, G32, G33, G34, K12, K20, K22, M13