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Article
The Exit Structure of Venture Capital
Faculty Scholarship
  • D. Gordon Smith
Publication Date
12-31-2005
Document Type
Symposium
Abstract
Venture capital contracts contain extensive provisions regulating exit by the venture capitalists. In this Article, Professor Smith employs financial contracting theory in conjunction with original data collected from 367 venture-backed companies to analyze these exit provisions. He concludes that the combination of exit provisions in a typical venture capital relationship serves to lock venture capitalists into the investment during the initial stage. In later stages of the relationship, the venture capitalists acquire increasing control over exit by securing additional seats on the board of directors and by obtaining contractual exit rights. The result is a sophisticated transfer of control from the entrepreneur to the venture capitalists as financial investments increase.
General Notes
(Selected as one of the Best Corporate & Securities Articles of 2006 in a poll of corporate and securities law professors).
Citation Information
D. Gordon Smith. "The Exit Structure of Venture Capital" (2005) p. 315 - 356
Available at: http://works.bepress.com/gordon_smith/37/