Venture Capital and Private Equity Contracting

An International Perspective

By

  • Douglas Cumming, Schulich School of Business, York University, Canada
  • Sofia Johan, AFM Senior Research Fellow at the Tilburg Law and Economics Centre (TILEC) in The Netherlands and Adjunct Professor of Law and Finance at the Schulich School of Business, York University, Canada

Other books present corporate finance approaches to the venture capital and private equity industry, but many key decisions require an understanding of the ways that law and economics work together. This revised and updated 2e offers broad perspectives and principles not found in other course books, enabling readers to deduce the economic implications of specific contract terms. This approach avoids the common pitfalls of implying that contractual terms apply equally to firms in any industry anywhere in the world.

In the 2e, datasets from over 40 countries are used to analyze and consider limited partnership contracts, compensation agreements, and differences in the structure of limited partnership venture capital funds, corporate venture capital funds, and government venture capital funds. There is also an in-depth study of contracts between different types of venture capital funds and entrepreneurial firms, including security design, and detailed cash flow, control and veto rights. The implications of such contracts for value-added effort and for performance are examined with reference to data from an international perspective. With seven new or completely revised chapters covering a range of topics from Fund Size and Diseconomies of Scale to Fundraising and Regulation, this new edition will be essential for financial and legal students and researchers considering international venture capital and private equity.

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Audience

Undergraduates and graduate students of economics, law and business interested in studying financial and legal aspects of venture capital and private equity

 

Book information

  • Published: August 2013
  • Imprint: ELSEVIER
  • ISBN: 978-0-12-409537-3


Table of Contents

Part I. Introduction
1. Introduction and Overview
2. Agency Costs and Forms of Finance
3. Overview of Institutional Contexts and Empirical Methods

Part II. Fund Structure and Governance
4. Fundraising
5. Limited Partnership Agreements
6. Compensation Contracts
7. Specialized Investment Mandates
8. Style Drift
9. The Role of Government and Alternative Policy Options

Part III. Financial Contracting between Funds and Entrepreneurs
10. The Investment Process
11. Security Design
12. Preplanned Exits and Contract Design
13. Legal Conditions and Venture Capital Governance

Part IV. Investor Effort
14. Investor value-added
15. Contracts and effort
16. Local Bias
17. Portfolio Size
18. Fund Size

Part V. Divestment
19. The Divestment Process
20. Investment Duration
21. Contracts and Exits
22. Returns, Valuation and Disclosure

Part VI. Conclusion and Appendices
23. Summary and Concluding Remarks

Online Appendices
Appendix 1: Sample Limited Partnership Fund Agreement
Appendix 2: Sample Term Sheet
Appendix 3: Sample Shareholder Agreement
Appendix 4: Sample Subscription Agreement