Premium
WHAT DO ECONOMISTS TELL US ABOUT VENTURE CAPITAL CONTRACTS?
Author(s) -
Tykvová Tereza
Publication year - 2007
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.2007.00272.x
Subject(s) - venture capital , web syndication , social venture capital , convertible , convertible bond , finance , business , incentive , pre money valuation , agency cost , economics , portfolio , investment (military) , debt , shareholder , market economy , corporate governance , structural engineering , politics , political science , law , engineering
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.