Conditional Allocation of Control Rights in Venture Capital Finance

Gebhardt, Georg und Schmidt, Klaus M. (März 2006): Conditional Allocation of Control Rights in Venture Capital Finance. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2006-13

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.

• Dokumententyp: Paper
• Keywords: Corporate Finance, Venture Capital, Control Rights, Convertible Securities
• Fakultät: Volkswirtschaft ; Volkswirtschaft > Munich Discussion Papers in Economics ; Volkswirtschaft > Munich Discussion Papers in Economics > Mikroökonomik ; Volkswirtschaft > Munich Discussion Papers in Economics > Finanzmärkte ; Volkswirtschaft > Munich Discussion Papers in Economics > Institutionenökonomik ; Volkswirtschaft > Munich Discussion Papers in Economics > Spieltheorie ; Volkswirtschaft > Lehrstühle > Seminar für Wirtschaftstheorie
• Themengebiete: 300 Sozialwissenschaften > 300 Sozialwissenschaft, Soziologie ; 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: D23, G24, G32
• Sprache: Englisch