DP3243 Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses

Author(s): Steven Kaplan, Per Johan Strömberg
Publication Date: March 2002
Keyword(s): brokerage, capital and ownership structure, financing policy, investment banking, venture capital
JEL(s): G24, G32
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3243

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.