Venture Capital Exit Rights
Norwegian School of Economics (NHH); London School of Economics - Financial Markets Group (FMG); Center for Financial Studies (CFS)
Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Goethe University Frankfurt - Research Center SAFE
November 22, 2010
Journal of Economics & Management Strategy, Vol. 19, Issue 4, pp. 1071-1116, 2010
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 (IPOs). We show that venture capital contracts include exit rights to mitigate potential hold?up problems of the VC in the case of exit.
Number of Pages in PDF File: 46
Date posted: January 10, 2011