Evolution of Decision and Control Rights in Venture Capital Contracts: An Empirical Analysis

Uwe Walz () and Carsten Bienz

FMG Discussion Papers from Financial Markets Group

Abstract: We analyze the structure and evolution of the allocation of decision and control rights in venture capital contracts by using a sample of 464 contracts between venture capitalists (VC) and portfolio firms from Germany. We focus on the evolution of control and decisions rights along three time dimensions: the point in time when the contract was signed, the expected duration of the contract and the actual duration of the relationship. We show that contracts are not static but that control rights are adjusted along all three time dimensions. First, we observe a change in the structure but not in the level of the VC’s control rights during the relationship between the VC and the portfolio firm. While venture capitalists return superfluous operational rights to entrepreneurs, they gain (valuable) exit rights during the course of the relationship. Second, we show that the shorter the expected length of the VC’s engagement the more control rights are allocated to the hands of the VC. Finally, we observe that learning took place in the German VC market. Keywords: venture capital, corporate governance, empirical contract theory, control rights,exit rights.JEL classification: G24, G32, D86, D80, G34.

Date: 2006-12
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp585.pdf (application/pdf)

Related works:
Working Paper: Evolution of Decision and Control Rights in Venture Capital Contracts: An Empirical Analysis (2007)
Working Paper: Evolution of decision and control rights in venture capital contracts: an empirical analysis (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fmg:fmgdps:dp585

Access Statistics for this paper

More papers in FMG Discussion Papers from Financial Markets Group
Bibliographic data for series maintained by The FMG Administration ().