2015

Changing the Nexus: The Evolution and Renegotiation of Venture Capital Contracts

Reprint No. 2015:42

Author(s): Ola Bengtsson and Berk A. SensoyYear: 2015 Title: Journal of Financial and Quantitative Analysis Volume (No.): 50 (3) Pages: 349–375
Online article (restrictions may apply)


We study the evolution and renegotiation of the cash-flow rights that venture capitalists (VCs) obtain in their portfolio companies. When company performance between financing rounds is poor, subsequent contracts contain stronger VC cash-flow rights, and existing VCs tend to either give new VCs senior claims or forfeit their existing rights altogether. These results are consistent with the importance of financing problems between different VCs and with theory predicting that financing frictions worsen with poor performance. A consequence is that VC cash-flow rights are frequently significantly diluted before exit, implying that VC investments are riskier than previously estimated.


Reference:
Bengtsson, Ola and Berk A. Sensoy (2015), "Changing the Nexus: The Evolution and Renegotiation of Venture Capital Contracts". Journal of Financial and Quantitative Analysis 50(3), 349–375.

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

About the book

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