Participating convertible preferred stock in venture capital exits

Sridhar Arcot

Journal of Business Venturing, 2014, vol. 29, issue 1, 72-87

Abstract: This paper develops a theory of the participating convertible preferred (PCP) stock commonly used in venture capital settings. I show that the participation and convertibility features of PCP stock can be used to reduce information asymmetry between the venture and potential investors at the time of exit. Further, the convertibility feature of PCP helps in alleviating the problem of insufficient entrepreneurial effort. I then derive implications for the two most common types of exits in venture capital—initial public offerings and trade sales—and explain how US venture capital markets differ from other VC markets.

Keywords: Participating convertibles; Exits; Signaling; IPOs; TS (search for similar items in EconPapers)
JEL-codes: G24 G32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbvent:v:29:y:2014:i:1:p:72-87

DOI: 10.1016/j.jbusvent.2013.06.001

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