Presentation Transcript
“Optimal Investment, Monitoring, and the Staging of Venture Capital” :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION “Optimal Investment, Monitoring, and the Staging of Venture Capital” Gompers (Journal of Finance, 1995)
Agency Theory and Venture Capital :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Agency Theory and Venture Capital This study derives basic implications from agency theory on the structure of venture financing, and tests them with a sample of 794 venture-backed companies.
Derivation of hypotheses:
Which firms require close monitoring?
More uncertain prospects: early stage
Higher agency costs
What is the cost of monitoring?
Monetary and opportunity costs
… This implies staged financing
What are agency costs?
Private benefits
Inefficient continuation
…. these imply that firms with more intangible assets and more R&D intensive will attract more monitoring and more staging.
Paper preview :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Paper preview Data:
- random sample of 794 U.S. venture-backed firms over 1961 to 199 mix of company-level data and industry-level COMPUSTAT information on sector averages
Descriptive statistics:
-VC-backed companies are R&D intensive
- distribution of exits
- distribution of stages
Regression analysis:
- duration analysis of round staging
- determinants of round size
- determinants of round numbers
Results :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Results
Results :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Results
“Financial Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts”Kaplan and Strömberg (Review of Economic Studies, 2003) :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION “Financial Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts”Kaplan and Strömberg (Review of Economic Studies, 2003) This study examines actual data from investment memoranda on 119 start-ups from 14 US VCs.
Data focus on the contracting dimension and are used to test predictions of financial contracting theory.
The data
strenght: non-survey data
weakness: small sample, potential biases
Descriptive results: separation of cash-flow and other rights
Use of securities: prevalence of convertibles :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Use of securities: prevalence of convertibles
Cash flow rights: often are state-contingent :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Cash flow rights: often are state-contingent
Voting rights: often are state-contingent :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Voting rights: often are state-contingent
Board rights: often are state-contingent :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Board rights: often are state-contingent
Liquidation rights: strong :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Liquidation rights: strong
Use of contingencies :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Use of contingencies
Determinants of voting controls :8204 ENTREPRENEURSHIP, FINANCE AND INNOVATION Determinants of voting controls