Venture Capital and Private Equity Contracting (eBook)

Front Cover 1
Venture Capital and Private Equity Contracting 4
Copyright Page 5
Contents 8
Preface 10
Part One: Introduction 16
Chapter 1. Introduction and Overview 18
1.1 What Are Venture Capital and Private Equity? 18
1.2 How Do Venture Capital and Private Equity Differ from Alternative Sources of Capital? 22
1.3 How Large Is the Market for Venture Capital and Private Equity? 30
1.4 What Issues Are Relevant to the Study of Venture Capital and Private Equity? 33
Chapter 2. Overview of Agency Theory 42
2.1 Introduction and Learning Objectives 42
2.2 Forms of Finance 43
2.3 Agency Problems 47
2.4 Does Mitigating Agency Problems Enhance Firm Value? 60
2.5 Summary and Steps Forward in Remaining Chapters 62
Key Terms 63
Discussion Questions 63
Chapter 3. Overview of Institutional Contexts, Empirical Methods 66
3.1 Introduction and Learning Objectives 66
3.2 An Overview of the International Institutional and Legal Context 66
3.3 Statistics and Econometrics Used in This Book 72
3.4 Summary 80
Key Terms 81
Key Statistical and Econometric Terms 81
Discussion Questions 81
Part Two: Fund Structure and Governance 82
Chapter 4. What Should Fund Managers Care About? Perspectives from Institutional Investors 84
4.1 Introduction and Learning Objectives 84
4.2 Institutional Investor Objectives from Investment in Private Equity 85
4.3 Summary 105
Key Terms 105
Discussion Questions 106
Chapter 5. Limited Partnership Agreements 108
5.1 Introduction and Learning Objectives 108
5.2 Types of Restrictive Covenants 109
5.3 What Affects the Frequency of Use of Limited Partnership Covenants? 113
5.4 Survey of Private Equity Funds 115
5.5 Econometric Tests 126
5.6 Limitations, Alternate Explanations, and Future Research 140
5.7 Conclusions 141
Key Terms 142
Discussion Questions 142
Chapter 6. Compensation Contracts 144
6.1 Introduction and Learning Objectives 144
6.2 Compensation Contracts in Limited Partnerships 145
6.3 What Affects the Design of Limited Partnership Compensation Contracts? 146
6.4 Data 149
6.5 Econometric Tests 158
6.6 Limitations, Alternate Explanations, and Future Research 173
6.7 Conclusions 175
Key Terms 176
Discussion Questions 176
Chapter 7. Fundraising and Regulation 178
7.1 Introduction and Learning Objectives 178
7.2 Regulation of Institutional Investors and Fund Managers 179
7.3 Legal and Institutional Details and Testable Hypotheses 181
7.4 Data 185
7.5 Multivariate Analyses 207
7.6 Extensions and Future Research 218
7.7 Conclusions 219
Key Terms 220
Discussion Questions 221
Chapter 8. Specialized Investment Mandates 222
8.1 Introduction and Learning Objectives 222
8.2 Why Socially Responsible Investments in Private Equity? Testable Hypotheses 224
8.3 Data 229
8.4 Multivariate Empirical Analyses 243
8.5 Extensions and Future Research 252
8.6 Conclusions 253
Key Terms 254
Discussion Questions 254
Chapter 9. The Role of Government and Alternative Policy Options 256
9.1 Introduction and Learning Objectives 256
9.2 Taxation 257
9.3 Securities Laws 268
9.4 Regulation Pertaining to the Demand for Entrepreneurial Capital 268
9.5 Regulations Pertaining to the Supply of Entrepreneurial Capital 269
9.6 Direct Government Investment Programs 271
9.7 Summary 293
Key Terms 294
Discussion Questions 294
Part Three: Financial Contracting between Funds and Entrepreneurs 296
Chapter 10. The Investment Process 298
10.1 Introduction and Learning Objectives 298
10.2 Due Diligence 298
10.3 Stage of Development and Industry 300
10.4 Staging 301
10.5 Fund Flows and Valuations 303
10.6 Syndication 304
10.7 Board Seats 306
10.8 Contract Terms 307
10.9 Summary 309
Key Terms 310
Discussion Questions 310
Chapter 11. Security Design 312
11.1 Introduction and Learning Objectives 312
11.2 Theory and Hypotheses 316
11.3 Data 328
11.4 Empirical Tests 335
11.5 Limitations, Alternative Explanations, and Future Research 362
11.6 Conclusions 364
Appendix 365
Key Terms 372
Discussion Questions 373
Chapter 12. Security Design and Adverse Selection 374
12.1 Introduction and Learning Objectives 374
12.2 Adverse Selection, Capital Structure, Firm Characteristics, and Syndication 375
12.3 Data 379
12.4 Empirical Evidence 385
12.5 Conclusions 401
Key Terms 402
Discussion Questions 403
Chapter 13. Corporate Venture Capital Fund Contracts 404
13.1 Introduction and Learning Objectives 404
13.2 Financial Contracting in Venture Capital 405
13.3 U.S. and Canadian Corporate and Limited Partnership Venture Capital Fund Investments in Canadian Entrepreneurial Firms 410
13.4 European Corporate Venture Capital Fund Investments 417
13.5 Venture Capital Fund Contracts, Exits, and Returns Performance 418
13.6 Lessons for Corporations Setting Up Venture Capital Funds 420
13.7 Concluding Remarks and Future Research 421
Key Terms 423
Discussion Questions 423
Chapter 14. Preplanned Exits and Contract Design 424
14.1 Introduction and Learning Objectives 424
14.2 Hypotheses 426
14.3 Data 430
14.4 Multivariate Tests 442
14.5 Limitations and Future Research 459
14.6 Conclusions 461
Key Terms 462
Discussion Questions 462
Part Four: Investor Effort 464
Chapter 15. Investor Value-added 466
15.1 Introduction and Learning Objectives 466
15.2 Innovation and Efficiency 466
15.3 Do Contract Terms Facilitate Investor Effort? 468
15.4 Location 469
15.5 Portfolio Size 471
15.6 Investment Duration 471
15.7 Summary 471
Key Terms 472
Discussion Questions 472
Chapter 16. Contracts and Effort 474
16.1 Introduction and Learning Objectives 474
16.2 Hypotheses 476
16.3 Methodology 480
16.4 The Dataset 488
16.5 Econometric Analysis 499
16.6 Limitations, Alternative Explanations, and Future Research 514
16.7 Conclusions 516
Key Terms 517
Discussion Questions 517
Chapter 17. Home Bias 518
17.1 Introduction and Learning Objectives 518
17.2 Institutional Structure, Prior Research, and Testable Hypotheses 520
17.3 Data 524
17.4 Multivariate Logit Tests 534
17.5 The Scope of the Data and Generalizations That Can Be Drawn from the Empirical Analysis 544
17.6 Conclusions and Implications 545
Key Terms 546
Discussion Questions 546
Chapter 18. Portfolio Size 548
18.1 Introduction and Learning Objectives 548
18.2 Comparative Statistics and Hypotheses 549
18.3 Data 554
18.4 Empirical Evidence 567
18.5 Conclusions 589
Appendix 590
Key Terms 594
Discussion Questions 594
Part Five: Divestment 596
Chapter 19. The Divestment Process 598
19.1 Introduction and Learning Objectives 598
19.2 The Economics of Initial Public Offerings 600
19.3 Investment Duration and Time to Exit 603
19.4 The Mode of Exit 607
19.5 International Exit Statistics 609
19.6 Summary 611
Key Terms 612
Discussion Questions 612
Chapter 20. Exit Outcomes 614
20.1 Introduction and Learning Objectives 614
20.2 Hypotheses 615
20.3 Data 624
20.4 Regression Analyses 646
20.5 Conclusions 661
Key Terms 662
Discussion Questions 663
Chapter 21. Contracts and Exits 664
21.1 Introduction and Learning Objectives 664
21.2 Hypotheses 665
21.3 Variables in the Econometric Specifications 669
21.4 Data 675
21.5 Multivariate Regressions 678
21.6 Conclusions 711
Key Terms 711
Discussion Questions 711
Chapter 22. Valuation, Returns, and Disclosure 714
22.1 Introduction and Learning Objectives 714
22.2 Venture Capital Valuation Method 715
22.3 Factors That Affect Venture Capital Realized Returns and Reported Unrealized Returns 718
22.4 Conclusions and Remarks 733
Key Terms 734
Discussion Questions 734
Part Six: Conclusion 736
Chapter 23. Summary and Concluding Remarks 738
Online Appendices 742
References 744
Index 770
A 770
B 771
C 771
D 773
E 774
F 776
G 777
H 777
I 778
L 780
M 780
N 781
O 781
P 781
R 782
S 783
T 784
U 784
V 785
W 785