Research on the Allocation of Cash Flow Rights and Control Rights in Venture Capital Financing Contract

Research on the Allocation of Cash Flow Rights and Control Rights in Venture Capital Financing Contract

In view of the allocation of cash flow rights and control rights in venture capital firms, a financing contract model is set up by introducing the entrepreneur’s self-owned capital in this paper. This paper analyzes the affecting factors and mechanism to the allocation of cash flow rights and control rights, shows the relationship between cash flow rights and control rights, gives the bargain i...

The allocation of control rights in venture capital contracts

Venture capitalists often hold extensive control rights over entrepreneurial companies, including the right to fire entrepreneurs. This paper examines why, and under what circumstances, entrepreneurs would voluntarily relinquish control. Control rights protect the venture capitalists from hold-up by the entrepreneurs. This provides the correct incentives for the venture capitalists to search fo...

Joint Control and Redemption Rights in Venture Capital Contracts * Introduction

Often entrepreneurs and investors agree to governance mechanisms that resemble joint control – neither agent has dominant control of the firm, and corporate decisions unspecified in the initial contract are made only with the approval of both agents. This contradicts theoretical predictions that joint control is suboptimal, except under some limited circumstances. I develop a theoretical model ...

Staged Venture Capital Contracting with Ratchets and Liquidation Rights: An Analysis of Financing Constraints

While the theoretical literature strongly argues in favor of ratchets (anti-dilution protections) and liquidation rights, recent empirical studies documented limits in their use. This paper studies firms’ financing constraints in a model of staged venture capital financing where new-money raised and post-money values evolve randomly over time. Our analysis reveals that ventures fail if new mone...

Claims on Equity: Voting and Liquidity Differentials, Cash flow Preferences and Financing Rights