Working Paper: NBER ID: w8764
Authors: Steven N. Kaplan; Per Strömberg
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.
Keywords: No keywords provided
JEL Codes: G24; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater internal and external risks (D81) | more extensive VC cash flow rights (G32) |
| greater internal and external risks (D81) | more extensive control rights (G34) |
| greater internal risks (D81) | more contingencies for entrepreneurs (L26) |
| greater internal risks (D81) | greater complexity in contracts (D86) |
| expected VC monitoring and support (O22) | more favorable contract terms (L14) |