Corporate Venture Capital Contracts

24 Pages Posted: 23 Nov 2006 Last revised: 10 Sep 2008

Abstract

This paper introduces a dataset of securities used by US and Canadian venture capitalists (VCs) in seed, early and expansion stage Canadian entrepreneurial firms spanning the period 1991-2004. The data indicate Canadian limited partnership VCs are more likely to use common equity and convertible securities than Canadian corporate VCs, while Canadian corporate VCs are more likely to use non-convertible debt than Canadian limited partnership VCs. Similar patterns in security design are observed in the data in this paper for cross-border US limited partnership and corporate VC investments in Canadian entrepreneurial firms. Related evidence also indicates very similar contracting practices for European corporate VC investments. The securities used offer one explanation as to why corporate VC performance is typically less successful than limited partnership VC performance. The data also challenge the conventional wisdom that VCs always use convertible preferred equity.

Keywords: Corporate Venture Capital, Financial Contracting

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

Suggested Citation

Cumming, Douglas J., Corporate Venture Capital Contracts. Journal of Alternative Investments, pp. 40-53, Winter 2006, Available at SSRN: https://ssrn.com/abstract=946296

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

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