What Do Economists Tell Us About Venture Capital Contracts?

25 Pages Posted: 26 Jan 2007

See all articles by Tereza Tykvova

Tereza Tykvova

University of Hohenheim - Faculty of Business, Economics and Social Sciences

Abstract

Venture capital markets are characterized by multiple incentive problems and asymmetric information. Entrepreneurs and venture capitalists enter into contracts that influence their behaviour and mitigate the agency costs. In particular, they select an appropriate kind and structure of financing and specify the rights as well as the duties of both parties. The typical features of venture capital investments are an intensive screening and evaluation process, active involvement of venture capitalists in their portfolio companies, staging of capital infusions, use of special financing instruments such as convertible debt or convertible preferred stock, syndication among venture capitalists or limited investment horizon.

Suggested Citation

Tykvova, Tereza, What Do Economists Tell Us About Venture Capital Contracts?. Journal of Economic Surveys, Vol. 21, No. 1, pp. 65-89, February 2007, Available at SSRN: https://ssrn.com/abstract=959495 or http://dx.doi.org/10.1111/j.1467-6419.2007.00272.x

Tereza Tykvova (Contact Author)

University of Hohenheim - Faculty of Business, Economics and Social Sciences

Germany

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