Capital Structure in Venture Finance

Posted: 13 May 2004

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Prior research has argued that convertible preferred equity is the optimal form of venture capital finance, based on datasets with up to 213 observations from the U.S., where unique tax biases exist in favour of convertible preferred. This paper introduces a comparable sample of 3083 Canadian corporate and limited partnership venture financing transactions spanning the years 1991-2000. The data indicate a variety of securities are used, and convertible preferred equity has not been the most frequent. Empirical tests offer strong support for the proposition that the mix of financing instruments minimizes the costs arising from a set of agency problems.

Keywords: Venture Capital, Capital Structure, Financial Contracting

JEL Classification: G24, G31, G32, G28, G33, G34, G35, G38

Suggested Citation

Cumming, Douglas J., Capital Structure in Venture Finance. Available at SSRN:

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States


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