Venture Capital and Private Equity Contracting

Douglas Cumming, J.D., Ph.D., CFA, is the DeSantis Distinguished Professor of Finance and Entrepreneurship the College of Business, Florida Atlantic University. His research interests include crowdfunding, venture capital, private equity, hedge funds, entrepreneurship, and law and finance. He is the Managing Editor-in-Chief of the Journal of Corporate Finance (2018-2020) and the incoming Co-Editor-in-Chief of the British Journal of Management (2020-2022). He been a guest editor for over a dozen special issues of top journals. He has published over 180 articles in leading refereed academic journals in finance, management, and law and economics, such as the Academy of Management Journal, Journal of Financial Economics, Review of Financial Studies, Journal of International Business Studies, and the Journal of Empirical Legal Studies. His work has been reviewed in numerous media outlets, including the Chicago Tribune, The Economist, Canadian Business, the National Post, the New York Times, and The New Yorker. Douglas is a regular speaker at academic and industry conferences around the world. He has given recent keynote speeches at the British Academy of Management Corporate Governance Conference, Entrepreneurial Finance Association, Financial Research Network Corporate Finance Conference, French Finance Association, Infiniti Conference on International Finance, Vietnam Symposium in Banking and Finance, the Budapest Liquidity and Financial Markets Conference, and the Humbolt University of Berlin Fintech Conference, among others. Much of Douglas Cumming’s work is online at SSRN: http://ssrn.com/author=75390 Sofia Johan, LL.B (Liverpool), LL.M. in International Economic Law (Warwick), Ph.D. in Law and Economics (Tilburg), is an Assistant Professor of Finance and Fellow, Phil Smith Center for Free Enterprise, at the College of Business, Florida Atlantic University. She is also the AFM Senior Research Fellow at the Tilburg Law and Economics Centre (TILEC) in The Netherlands. Her research is primarily focused on law and finance, market surveillance, hedge funds, venture capital, private equity and IPOs. Her recent publications have appeared in numerous journals including the Journal of Financial Economics, Journal of International Business Studies, American Law and Economics Review, International Review of Law and Economics, Journal of Banking and Finance, European Financial Management, European Economic Review, and Entrepreneurship Theory and Practice, among numerous other journals. Her work has been presented at the American Law and Economics Association, the American Economics Association, European Law and Economics Association, the European Financial Management Association, and other leading international conferences. Prior to winning her Ph.D., she was the head legal counsel at the largest government owned venture capital fund in Malaysia. She has also consulted for a variety of governmental and private organizations in Australasia and Europe. http://ssrn.com/author=370203

Part I. Introduction1. Introduction and Overview2. Agency Costs and Forms of Finance 3. Overview of Institutional Contexts and Empirical Methods

Part II. Fund Structure and Governance4. Fundraising 5. Limited Partnership Agreements6. Compensation Contracts 7. Specialized Investment Mandates8. Style Drift9. The Role of Government and Alternative Policy Options

Part III. Financial Contracting between Funds and Entrepreneurs10. The Investment Process11. Security Design12. Preplanned Exits and Contract Design13. Legal Conditions and Venture Capital Governance

Part IV. Investor Effort14. Investor value-added15. Contracts and effort16. Local Bias17. Portfolio Size18. Fund Size

Part V. Divestment19. The Divestment Process20. Investment Duration21. Contracts and Exits22. Returns, Valuation and Disclosure

Part VI. Conclusion and Appendices23. Summary and Concluding Remarks

Online AppendicesAppendix 1: Sample Limited Partnership Fund AgreementAppendix 2: Sample Term SheetAppendix 3: Sample Shareholder AgreementAppendix 4: Sample Subscription Agreement