Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses
NBER Working Paper No. 8764
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.
Published: Kaplan, Steven N. and Per Stromberg. "Characteristics, Contracts, And Actions: Evidence From Venture Capitalist Analyses," Journal of Finance, 2004, v59(5,Oct), 2177-2210.