Learning, Corporate Control and Performance Requirements in Venture Capital Contracts

Chan, Yuk-Shee; Siegel, Daniel R.; Thakor, Anjan V.

doi:10.2307/2526845

Cited by 158 publications

(78 citation statements)

References 5 publications

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“…According to Gompers and Lerner (2004, p. 130), the lead venture capitalist visits the entrepreneur once a month on average and spends 4 to 5 hours at the facility during each visit. One can use a two-period agency model to describe the learning process that takes place between the entrepreneur and the venture capitalist in the first round of funding of a seed stage (Chan, Siegel, & Thakor, 1990). In the first period, this learning process changes the information structure of agents and modifies the risk evaluation before the second period.…”

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confidence: 99%

Syndication of Venture Capital Investment: The Art of Resource Pooling

Ferrary¹

2010

Entrepreneurship Theory and Practice

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This article explores the rationale of syndications of institutional venture capital investors when they fund start-ups. There is an implicit labor division between institutional venture capital investors in which pure venture capital firms are in charge of converting investment uncertainty into risk by funding the seed stage of start-ups. The other investors invest in the following stages to sustain the start-ups' development. Relationships between investors are also handled following informal rules. Exchanges between institutional venture capital investors are based on a reciprocity that follows the informal principles of the gift exchange theory.

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confidence: 99%

Syndication of Venture Capital Investment: The Art of Resource Pooling

Ferrary¹

2010

Entrepreneurship Theory and Practice

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“…The entrepreneur might be unwilling to expend effort to maximize shareholder's value (Gompers, 1995;Chan et al, 1990;Hansen, 1992), or be willing to extract informational rents from information asymmetries (Aghion & Bolton, 1992;Hellmann, 1998;Kirilenko, 2001).…”

Section: Related Literaturementioning

confidence: 99%

“…To avoid an inefficient continuation of the venture project, the VC implements various mechanisms like contingent control allocation (Chan et al, 1990;Kirilenko, 2001), convertible securities (Casamatta, 2003;Cornelli & Yosha, 2003;Repullo & Suarez, 2004;Schmidt, 2003), and staging (Bergemann & Hege, 1998;Neher, 1999).…”

Section: Related Literaturementioning

confidence: 99%

Moral Hazard in VC Finance: More Expensive than You Thought

2016

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Venture projects are fraught with exogenous market risk and endogenous agency risk. We apply a real options perspective to analyze the investment decision of the venture capitalist (VC) in this set-up. The solutions presented are conflictive: the VC reduces his exposure to exogenous risk by delaying investments to wait for informational updates (delay option), but he mitigates endogenous risk by advancing investments to discover entrepreneur's effort. So far, papers focus on the optimal timing of investments considering independence of exogenous and endogenous risk. We show that interdependence of exogenous risk and endogenous risk exists. We find that endogenous risk prompts the VC to accelerate the discovery process when exogenous risk is high, and to abandon the delay option when it is most valuable.

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“…(iii) High growth tends to be associated with proprietary information which firms are loth to share with the general public but can divulge in private (Yosha, 1995). (iv) As Chan, Siegel and Thakor (1990) argue, bank loans are preferred over public debt when the firm has management skills but no credit reputation, a description that is again rather likely to fit a young, high-growth firm. (v) Bank loans are largely short-term debt while bonds are mostly long-term debt; and, as Barclay and Smith (1996) point out, empirically firms with more investment opportunities use significantly more short-term debt than long term debt.…”

Section: The Case For a U-sbaped Relation Between Loan And Growthmentioning

confidence: 99%

Reexamining the Relation between Debt Mix and Growth in Japan

Sercu

Yao

2002

SSRN Journal

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Abstract. We propose a U-shaped relation between the relative weight of bank loans in total corporate debt and the firm's market-to-book ratio-a proxy for expected growth-which reconciles most existing theories. Using data on Japanese firms for 1983-97, we do find that, in the lower range of growth spectrum, firms with better prospects take more bonds in their debt mix: when the firm's prospects improve, the benefits from private debt initially fall relative to its costs. In contrast, in the higher range of growth, firms with more growth potentials take more monitored debt, reflecting, amongst other factors, the higher information and contracting costs of public debt faced by extreme growers. We can explain the seemingly conflicting evidence that Anderson and Makhija (1999) and Hoshi, Kashyap and Scharfstein (1993) provide in this respect. We also find that keiretsu firms do not behave significantly different from non-keiretsu ones, suggesting that keiretsu firms are fairly independent in their financing decisions and that extra costs and benefits from bank loans are either small or in reasonable balance. Firms that faced restrictions in issuing bonds, pre-1990, continue to behave differently from other firms long after the restrictions were lifted.

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Learning, Corporate Control and Performance Requirements in Venture Capital Contracts

Cited by 158 publications

References 5 publications

Syndication of Venture Capital Investment: The Art of Resource Pooling

Syndication of Venture Capital Investment: The Art of Resource Pooling

Moral Hazard in VC Finance: More Expensive than You Thought

Reexamining the Relation between Debt Mix and Growth in Japan

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