Logo
DeutschClear Cookie - decide language by browser settings
Gebhardt, Georg and Schmidt, Klaus M. (March 2006): Conditional Allocation of Control Rights in Venture Capital Finance. Discussion Papers in Economics 2006-13

This is the latest version of this item.

[img]
Preview

PDF

248kB

Abstract

When a young entrepreneurial firm matures, it is often necessary to replace the founding entrepreneur by a professional manager. This replacement decision can be affected by the private benefits of control enjoyed by the entrepreneur which gives rise to a conflict of interest between the entrepreneur and the venture capitalist. We show that a combination of convertible securities and contingent control rights can be used to resolve this conflict efficiently. This contractual arrangement is frequently observed in venture capital finance.

Available Versions of this Item