Preplanned exit strategies in venture capital

Deal Structuring in Philanthropic Venture Capital Investments: Financing Instrument, Valuation and Covenants

“…Notes and registrations were then reordered and integrated with additional information and documents provided by PhVCs. The selection of the sample of PhVCs that were interviewed was based on the following characteristics: (a) location of PhVCs, to control for any differences in the deal structuring phases, as described by Cumming and Johan (2008) and Cumming (2005b) in the case of traditional VC; (b) age of the PhVCs to control for their experience in structuring deals; (c) typology of PhVC fund; (d) stage of development of backed SEs; and (e) organizational form of the backed SEs.…”

“…Notably, in the United States, VCs use convertible preferred shares, while in the other non-US countries VCs use a variety of securities including common equity, preferred equity, convertible preferred equity, debt, convertible debt, and combinations (for Canada, see Cumming (2005b); for Europe, see Cumming and Johan (2008)). One explanation for these differences across countries is the tax bias in favor of convertible preferred shares in the United States (Gilson and Schizer, 2003).…”

Banks Versus Venture Capital When the Venture Capitalist Values Private Benefits of Control

“…Our approach is reasonably convenient in obtaining tractability and getting truthful revelation in the one-sided asymmetric information case. 16 We have shown that when C = 0, bank-…nancing is optimal for the entrepreneur if and only if his project yields monetary returns less than its startup cost K, which means that these entrepreneurs will never be able to pay back their bank loans. As a result, banks never want to provide funds in the presence of VC-funding since they can never breakeven in the start-up market.…”

“…-coe¢ cient, the project cannot go ahead and each principal gets a return equal to their disagreement payo¤s, zero for the entrepreneur and C > 0 for the VC. 16 Thus, the pair of payo¤s to disagreement is d = (0; C).…”

Going Public - Going Private: The Case of VC-Backed Firms

“…In addition, the literature on VC exit decisions (via IPOs) has looked into the implications of this decisive decision on the contractual relationship between VC and entrepreneur (see e.g. Cumming (2008) and Cumming and Johan (2008)). But most of these paper address the time at the IPO or prior to the IPO.…”