Discussion Paper Details

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Title: Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses

Author(s): Steven Kaplan and Per Johan Strömberg

Publication Date: March 2002

Keyword(s): brokerage, capital and ownership structure, financing policy, investment banking and venture capital

Programme Area(s): Financial Economics

Abstract: 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.

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Bibliographic Reference

Kaplan, S and Strömberg, P. 2002. 'Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses'. London, Centre for Economic Policy Research.