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Venture Capital and Private Equity Contracting
An International Perspective
- 2nd Edition - August 21, 2013
- Authors: Douglas J. Cumming, Sofia A. Johan
- Language: English
- Paperback ISBN:9 7 8 - 0 - 1 2 - 8 1 0 0 7 6 - 9
- Hardback ISBN:9 7 8 - 0 - 1 2 - 4 0 9 5 3 7 - 3
- eBook ISBN:9 7 8 - 0 - 1 2 - 4 0 9 5 9 6 - 0
Other books present corporate finance approaches to the venture capital and private equity industry, but many key decisions require an understanding of the ways that law and ec… Read more
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Institutional subscription on ScienceDirect
Request a sales quoteOther books present corporate finance approaches to the venture capital and private equity industry, but many key decisions require an understanding of the ways that law and economics work together. This revised and updated 2e offers broad perspectives and principles not found in other course books, enabling readers to deduce the economic implications of specific contract terms. This approach avoids the common pitfalls of implying that contractual terms apply equally to firms in any industry anywhere in the world.
In the 2e, datasets from over 40 countries are used to analyze and consider limited partnership contracts, compensation agreements, and differences in the structure of limited partnership venture capital funds, corporate venture capital funds, and government venture capital funds. There is also an in-depth study of contracts between different types of venture capital funds and entrepreneurial firms, including security design, and detailed cash flow, control and veto rights. The implications of such contracts for value-added effort and for performance are examined with reference to data from an international perspective. With seven new or completely revised chapters covering a range of topics from Fund Size and Diseconomies of Scale to Fundraising and Regulation, this new edition will be essential for financial and legal students and researchers considering international venture capital and private equity.
- An analysis of the structure and governance features of venture capital contracts
- In-depth study of contracts between different types of venture capital funds and entrepreneurial firms
- Presents international datasets from over 40 countries around the world
- Additional references on a companion website
- Contains sample contracts, including limited partnership agreements, term sheets, shareholder agreements, and subscription agreements
Undergraduates and graduate students of economics, law and business interested in studying financial and legal aspects of venture capital and private equity
Dedication
Preface
A Brief Note on Organization and Data
Part One: Introduction
1. Introduction and Overview
1.1 What is Venture Capital and Private Equity?
1.2 How Does Venture Capital and Private Equity Differ from Alternative Sources of Capital?
1.3 How Large Is the Market for Venture Capital and Private Equity?
1.4 State of the Venture Capital Market Pre- and Postfinancial Crisis
1.5 What Issues Are Relevant to the Study of Venture Capital and Private Equity?
Key Terms
Discussion Questions
2. Overview of Agency Theory, Empirical Methods, and Institutional Contexts
2.1 Introduction and Learning Objectives
2.2 Forms of Finance
2.3 Agency Problems
2.4 Does Mitigating Agency Problems Enhance Firm Value?
2.5 Summary and Steps Forward in Remaining Chapters
Key Terms
Discussion Questions
3. Overview of Institutional Contexts and Empirical Methods
3.1 Introduction and Learning Objectives
3.2 An Overview of the International Institutional and Legal Context
3.3 Statistics and Econometrics Used in This Book
3.4 Summary
Key Terms
Key Statistical and Econometric Terms
Part Two: Fund Structure and Governance
4. Fundraising and Regulation
4.1 Introduction and Learning Objectives
4.2 Institutional Investor Objectives from Investment in Private Equity
4.3 Regulation of Institutional Investors and Fund Managers
4.4 Legal and Institutional Details and Testable Hypotheses
4.5 Data
4.6 Multivariate Analyses
4.7 Extensions and Future Research
4.8 Conclusions
Key Terms
Discussion Questions
5. Limited Partnership Agreements
5.1 Introduction and Learning Objectives
5.2 Types of Restrictive Covenants
5.3 What Affects the Frequency of Use of Limited Partnership Covenants?
5.4 Survey of Private Equity Funds
5.5 Econometric Tests
5.6 Limitations, Alternate Explanations, and Future Research
5.7 Conclusion
5.8 Key Terms
Discussion Questions
6. Compensation Contracts
6.1 Introduction and Learning Objectives
6.2 Compensation Contracts in Limited Partnerships
6.3 What Affects the Design of Limited Partnership Compensation Contracts?
6.4 Data
6.5 Econometric Tests
6.6 Limitations, Alternate Explanations, and Future Research
6.7 Conclusion
Key Terms
Discussion Questions
7. Style Drift
7.1 Introduction and Learning Objectives
7.2 A Theory of Style Drift in Private Equity
7.3 Data and Descriptive Statistics
7.4 Regression Analysis
7.5 Limitations and Future Research
7.6 Conclusion
Key Terms
Discussion Questions
Appendix
8. Institutional Investment in Listed Private Equity
8.1 Introduction and Learning Objectives
8.2 Literature and Hypotheses
8.3 Data and Summary Statistics
8.4 Multivariate Analyses
8.5 Conclusions
Key Terms
Discussion Questions
9. The Role of Government and Alternative Policy Options
9.1 Introduction and Learning Objectives
9.2 Taxation
9.3 Securities Laws
9.4 Regulation Pertaining to the Demand for Entrepreneurial Capital
9.5 Regulations Pertaining to the Supply of Entrepreneurial Capital
9.6 Direct Government Investment Programs
9.7 Summary
Key Terms
Discussion Questions
Part Three: Financial Contracting between Funds and Entrepreneurs
10. The Investment Process
10.1 Introduction and Learning Objectives
10.2 Due Diligence
10.3 Stage of Development and Industry
10.4 Staging
10.5 Fund Flows and Valuations
10.6 Syndication
10.7 Board Seats
10.8 Contract Terms
10.9 Summary
Key Terms
Discussion Questions
11. Security Design
11.1 Introduction and Learning Objectives
11.2 Theory and Hypotheses
11.3 Data
11.4 Empirical Tests
11.5 Limitations, Alternative Explanations, and Future Research
11.6 Conclusions
Appendix
Key Words
Discussion Questions
12. Preplanned Exits and Contract Design
12.1 Introduction and Learning Objectives
12.2 Hypotheses
12.3 Data
12.4 Multivariate Tests
12.5 Limitations and Future Research
12.6 Conclusions
Key Terms
Discussion Questions
13. Legal Conditions and Venture Capital Governance
13.1 Introduction
13.2 Legality and Venture Governance
13.3 Data and Summary Statistics
13.4 Regression Analyses
13.5 Limitations and Future Research
13.6 Conclusion
Key Terms
Discussion Questions
Part Four: Investor Effort
14. Investor Value Added
14.1 Introduction and Learning Objectives
14.2 Innovation and Efficiency
14.3 Do Contract Terms Facilitate Investor Effort?
14.4 Location
14.5 Portfolio Size and Fund Size
14.6 Investment Duration
14.7 Summary
Key Terms
Discussion Questions
15. Contracts and Effort
15.1 Introduction and Learning Objectives
15.2 Hypotheses
15.3 Methodology
15.4 The Dataset
15.5 Econometric Analysis
15.6 Limitations, Alternative explanations, and Future Research
15.7 Conclusions
Keywords
Discussion Questions
16. Local Bias
16.1 Introduction
16.2 Hypotheses
16.3 Data and Summary Statistics
16.4 Testing Local Bias
16.5 Factors Contributing to the Local Bias in VC Investments
16.6 Are Local Ventures More Likely to Be Successful?
16.7 Conclusions, Implications, and Future Research
Key Terms
Discussion Questions
Appendix
17. Portfolio Size
17.1 Introduction and Learning Objectives
17.2 Comparative Statics and Hypotheses
17.3 Data
17.4 Empirical Evidence
17.5 Conclusion
Appendix
Key Terms
Discussion Questions
18. Fund Size
18.1 Introduction
18.2 Theoretical Considerations
18.3 The Data Set and Summary Statistics
18.4 Fund Size, Limited Attention, and Valuation
18.5 Fund Size, Limited Attention, and Venture Performance
18.6 Conclusion
Appendix
Part Five: Divestment
19. The Divestment Process
19.1 Introduction and Learning Objectives
19.2 The Economics of Initial Public Offerings
19.3 The Mode of Exit
19.4 International Exit Statistics
19.5 Summary
Key Terms
Discussion Questions
20. Investment Duration
20.1 Introduction
20.2 Venture Capital Investment Duration
20.3 Institutional Factors Influencing Investment Duration in Canada Versus the United States
20.4 Data and Summary Statistics
20.5 Regression Analyses of Time to Exit
20.6 Discussion and Conclusions
Key Terms
Discussion Questions
21. Contracts and Exits
21.1 Introduction and Learning Objectives
21.2 Hypotheses
21.3 Variables in the Econometric Specifications
21.4 Data
21.5 Multivariate Regressions
21.6 Conclusion
Key Terms
Discussion Questions
22. Returns, Valuation, and Disclosure
22.1 Introduction and Learning Objectives
22.2 Reporting Biases with Unrealized Investments: Institutional Background and Hypotheses
22.3 Data
22.4 Deriving a Benchmark: The Analysis of Realized Returns
22.5 Analysis of Reporting Biases in Unrealized Investments
22.6 Conclusion
Key Terms
Discussion Questions
Appendix Venture Capital Valuation Method
Part Six: Conclusion and Appendices
23. Summary and Concluding Remarks
Bibliography
- No. of pages: 780
- Language: English
- Edition: 2
- Published: August 21, 2013
- Imprint: Elsevier
- Paperback ISBN: 9780128100769
- Hardback ISBN: 9780124095373
- eBook ISBN: 9780124095960
DC
Douglas J. Cumming
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
Affiliations and expertise
DeSantis Distinguished Professor of Finance and Entrepreneurship, College of Business, Florida Atlantic University - Boca Raton, FL, USASJ
Sofia A. Johan
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
Affiliations and expertise
Assistant Professor of Finance, College of Business, Florida Atlantic University - Boca Raton, FL, USARead Venture Capital and Private Equity Contracting on ScienceDirect