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Post by D Gordon Smith on Jun 27, 2011 5:37:18 GMT 4
The Exit Structure of Venture Capital D. Gordon Smith Brigham Young University - J. Reuben Clark Law School UCLA Law Review, Vol. 53, p. 315, 2005 Univ. of Wisconsin Legal Studies Research Paper No. 1005 Abstract: Venture capital contracts contain extensive provisions regulating exit by the venture capitalists. In this Article, Professor Smith employs financial contracting theory in conjunction with original data collected from 367 venture-backed companies to analyze these exit provisions. He concludes that the combination of exit provisions in a typical venture capital relationship serves to lock venture capitalists into the investment during the initial stage. In later stages of the relationship, the venture capitalists acquire increasing control over exit by securing additional seats on the board of directors and by obtaining contractual exit rights. The result is a sophisticated transfer of control from the entrepreneur to the venture capitalists as financial investments increase. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID272231_code170891.pdf?abstractid=272231&mirid=2
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Post by Douglas Cumming on Jun 27, 2011 5:38:36 GMT 4
A Cross-Country Comparison of Full and Partial Venture Capital Exits Douglas Cumming York University - Schulich School of Business Jeffrey G. MacIntosh University of Toronto - Faculty of Law Journal of Banking and Finance, Vol. 27, No. 3, pp. 511-548, 2003 Abstract: This paper considers the issue of when venture capitalists (VCs) make a partial, as opposed to a full exit, for the full range of exit vehicles. A full exit for an IPO involves a sale of all of the venture capitalist's holdings within one year of the IPO; a partial exit involves sale of only part of the venture capitalist's holdings within that period. A full acquisition exit involves the sale of the entire firm for cash; in a partial acquisition exit, the venture capitalist receives (often illiquid) shares in the acquiror firm instead of cash. In the case of a buyback exit (in which the entrepreneur buys out the venture capitalist) or a secondary sale, a partial exit entails a sale of only part of the venture capitalist's holdings. A partial write-off involves a write down of the investment. We consider the determinants of full and partial venture capital exits for all five exit vehicles. We also perform a number of comparative empirical tests on samples of full and partial exits derived from a survey of Canadian and U.S. venture capital firms. The data offer support to the central hypothesis of the paper: that the greater the degree of information asymmetry between the selling VC and the buyer, the greater the likelihood of a partial exit to signal quality. The data also indicate differences between the U.S. and Canadian venture capital industries, and highlight the impact of legal and institutional factors on exit strategies across countries. Parts of this paper appear in an earlier and different version entitled The Extent of Venture Capital Exits: Evidence from Canada and the United States, forthcoming in a book pursuant to a conference at Tilburg University and edited by J. McCahery and L.D.R. Renneboog (Oxford University Press). papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID268557_code010509100.pdf?abstractid=268557&mirid=2
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Post by Douglas Cumming on Jun 27, 2011 5:39:43 GMT 4
Contracts and Exits in Venture Capital Finance Douglas Cumming York University - Schulich School of Business AFA 2003 Washington, DC Meetings The Review of Financial Studies, Vol. 21, Issue 5, pp. 1947-1982, 2008 Abstract: Using a sample of European venture capital investments, I study the relation between venture capital (VC) contracts and exits. The data indicate that ex ante, stronger VC control rights increase the likelihood that an entrepreneurial firm will exit by an acquisition, rather than through a write-off or an IPO. My findings are robust to controls for a variety of factors, including endogeneity and cases in which the VC preplans the exit at the time of time of contract choice. My findings are consistent with control-based theories of financial contracting, such as Aghion and Bolton (1992). papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1265936_code75390.pdf?abstractid=302695&mirid=2
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