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Contracts and Exits in Venture Capital Finance

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Contracts and exits from a sample of 179 investment rounds in 132 entrepreneurial firmsby 17 European venture capital (VC) funds are analyzed. The data indicate the financial contractsare quite heterogeneous in terms of both the cash flow and control rights. The use of differentsecurities by European VC funds does not depend on the definition of venture capital, and thesecurities used are not functional equivalents. A normative empirical analysis of exit shows thelikelihood of different types of exit vehicles (IPO, acquisition, and liquidation) and the returns toventure capital depend on not only firm specific characteristics but also the allocation of cashflow and control rights.Keywords: Venture Capital, Financial Contracting, Exit, IPO, AcquisitionJEL Classification: G24, G28, G31, G32, G35

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Douglas J. Cumming

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