Scandinavian Working Papers in Economics

SIFR Research Report Series,
Institute for Financial Research

No 14: Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses

Steven N. Kaplan and Per Strömberg
Additional contact information
Steven N. Kaplan: University of Chicago
Per Strömberg: Graduate School of Business, Postal: University of Chicago, 1101 East 58th Street, Chicago, IL 60637, USA

Abstract: We study the investment analyses of 67 portfolio investments by 11 venture capital (VC) firms. VCs describe the strengths and risks of the investments as well as expected post-investment monitoring. We classify the risks into three categories and relate them to VC cash flow rights, control rights, liquidation rights, contingencies, and monitoring. The internal risk results suggest that agency problems are important to contract design and monitoring. The external risk results are inconsistent with risk sharing, but, instead, consistent with certain types of monitoring and screening. Expected VC monitoring and support are related to the contracts.

Keywords: Investment banking; Venture capital; Brokerage; Financing policy; Capital and ownership structure

JEL-codes: G24; G32

48 pages, June 15, 2003

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