Venture Capital Funds, Organizational Law, and Passive Investors

Abstract

Existing scholarship tells us that investors in venture capital funds are passive. While this may be true in the U.S. market, it is not necessarily true in all venture capital markets around the world. This article questions why a jurisdiction would develop a market preference for active- or passive-investor venture capital funds. More specifically, it explores whether organizational law will influence the development of such a market preference.

In addition, because scholars have focused on passive-investor funds, there is a dearth of analysis of active-investor funds. This article discusses the transaction-cost strategies of active-investor funds. To that end, it provides examples from a venture capital market that is dominated by active-investor funds.

Keywords: Venture capital, organizational law, investors, Taiwan, private ordering, partnership, limited partnership, transaction costs