Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses

51 Pages Posted: 28 Dec 2001  

Per Strömberg

Swedish House of Finance

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: January 2002

Abstract

We study the investment analyses of 67 portfolio investments by 11 venture capital (VC) firms. VCs consider the attractiveness and risks of the business, management, and deal terms as well as expected post-investment monitoring. We then consider the relation of the analyses to the contractual terms. Greater internal and external risks are associated with more VC cash flow rights, VC control rights; greater internal risk, also with more contingencies for the entrepreneur; and greater complexity, with less contingent compensation. Finally, expected VC monitoring and support are related to the contracts. We interpret these results in relation to financial contracting theories.

JEL Classification: G24, G32

Suggested Citation

Strömberg, Per and Kaplan, Steven N., Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses (January 2002). AFA 2002 Atlanta Meetings. Available at SSRN: https://ssrn.com/abstract=295109 or http://dx.doi.org/10.2139/ssrn.295109

Per Stromberg (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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