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Changing the Nexus: The Evolution and Renegotiation of Venture Capital Contracts

Bengtsson, Ola LU and Sensoy, Berk A. (2015) In Journal of Financial and Quantitative Analysis 50(3). p.349-375
Abstract
We study the evolution and renegotiation of the cash-flow rights that venture capitalists (VCs) obtain in their portfolio companies. When company performance between financing rounds is poor, subsequent contracts contain stronger VC cash-flow rights, and existing VCs tend to either give new VCs senior claims or forfeit their existing rights altogether. These results are consistent with the importance of financing problems between different VCs and with theory predicting that financing frictions worsen with poor performance. A consequence is that VC cash-flow rights are frequently significantly diluted before exit, implying that VC investments are riskier than previously estimated.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Journal of Financial and Quantitative Analysis
volume
50
issue
3
pages
349 - 375
publisher
Cambridge University Press
external identifiers
  • wos:000359788000004
  • scopus:84939261106
ISSN
0022-1090
DOI
10.1017/S0022109015000137
language
English
LU publication?
yes
id
906f68b7-6ffb-4a07-b8ce-1c0f5bba8d0b (old id 7972375)
date added to LUP
2015-09-23 13:03:00
date last changed
2017-01-01 05:25:47
@article{906f68b7-6ffb-4a07-b8ce-1c0f5bba8d0b,
  abstract     = {We study the evolution and renegotiation of the cash-flow rights that venture capitalists (VCs) obtain in their portfolio companies. When company performance between financing rounds is poor, subsequent contracts contain stronger VC cash-flow rights, and existing VCs tend to either give new VCs senior claims or forfeit their existing rights altogether. These results are consistent with the importance of financing problems between different VCs and with theory predicting that financing frictions worsen with poor performance. A consequence is that VC cash-flow rights are frequently significantly diluted before exit, implying that VC investments are riskier than previously estimated.},
  author       = {Bengtsson, Ola and Sensoy, Berk A.},
  issn         = {0022-1090},
  language     = {eng},
  number       = {3},
  pages        = {349--375},
  publisher    = {Cambridge University Press},
  series       = {Journal of Financial and Quantitative Analysis},
  title        = {Changing the Nexus: The Evolution and Renegotiation of Venture Capital Contracts},
  url          = {http://dx.doi.org/10.1017/S0022109015000137},
  volume       = {50},
  year         = {2015},
}