Risk management in venture capital investor-investee relations

Gavin Reid, N. G Terry and Julia Smith

The European Journal of Finance, 1997, vol. 3, issue 1, 27-47

Abstract: This paper provides an empirical analysis of risk handling arrangements adopted in the relationship between the venture capital investor and his investee. The theoretical framework adopted is principal-agent analysis, which views the investee as a risk averse agent entering into a risk sharing contract with the investor, a risk neutral Fully diversified) principal. The sample analysed is made up of twenty venture capital investors in the UK over the period 1992-93, and (where available) their corresponding investee(s). These investors accounted for about three-quarters of venture capital activity in the UK over this period. The paper reports on evidence gathered by semi-structured interviews with investors and investees, on expected returns, portfolio balance, screening and risk sharing.

Date: 1997
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DOI: 10.1080/135184797337525

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