Conditional Allocation of Control Rights in Venture Capital Finance

Arbeitspapier

When a young entrepreneurial firm matures, it is often necessary to replace the founding entrepreneur by a professional manager. This replacement decision can be affected by the private benefits of control enjoyed by the entrepreneur which gives rise to a conflict of interest between the entrepreneur and the venture capitalist. We show that a combination of convertible securities and contingent control rights can be used to resolve this conflict efficiently. This contractual arrangement is frequently observed in venture capital finance.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Munich Discussion Paper ; No. 2006-13

Classification and Topics

• Classification: Wirtschaft ; Organizational Behavior; Transaction Costs; Property Rights ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Corporate Finance ; Venture Capital ; Control Rights ; Convertible Securities

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gebhardt, Georg ; Schmidt, Klaus M.
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
• (where): München
• (when): 2006

Further information

• DOI: doi:10.5282/ubm/epub.909
• Handle: http://hdl.handle.net/10419/104181
• URN: urn:nbn:de:bvb:19-epub-909-1
• Last update: 10.03.2025, 11:43 AM CET