The Exit Structure of Venture Capital
D. Gordon Smith
Brigham Young University - J. Reuben Clark Law School
UCLA Law Review, Vol. 53, p. 315, 2005
Univ. of Wisconsin Legal Studies Research Paper No. 1005
Venture capital contracts contain extensive provisions regulating exit by the venture capitalists. In this Article, Professor Smith employs financial contracting theory in conjunction with original data collected from 367 venture-backed companies to analyze these exit provisions. He concludes that the combination of exit provisions in a typical venture capital relationship serves to lock venture capitalists into the investment during the initial stage. In later stages of the relationship, the venture capitalists acquire increasing control over exit by securing additional seats on the board of directors and by obtaining contractual exit rights. The result is a sophisticated transfer of control from the entrepreneur to the venture capitalists as financial investments increase.
Number of Pages in PDF File: 43
Date posted: December 8, 2005