Bogle & Reuber

1992

To identify potential problems for businesses in biotechnology to obtain VC financing.

The authors conclude that VCC especially prefer to finance businesses that have reached advanced stages. VCC in the biotechnology sector assign much importance to experience and to the entrepreneur's personal qualities, and look for a competent management team. It seems that biotechnology businesses still lack these skills in Canada.

Fausnaugh & Hofer

1993

To deduce conceptual representation and criteria for decisions used by a VCC through cognitive mapping techniques.

The study shows that six sources of information are used by the VCC to evaluate businesses. Of these six, the four that characterize the entrepreneur are: the business plan; the first meeting of the VCC with the entrepreneur and his team; interviews with third parties; and interaction with the management team. Of these interviews, seven concept categories that represent the characteristics of the entrepreneur emerge.

Barry

1994

To list the articles that deal with VC and propose avenues of research.

Many authors explain what VCC do but do not show their added value on the businesses that are financed. The other avenues of research deal with the following questions. Should the businesses continue to find formal VC or would they do better to find other sources of financing? Why are business angels' investments important? Do the latter sacrifice returns or are formal VC investments more cost-effective? What are the ideal forms of divestment and under what conditions should they occur?

Carter & Van Auken

1994

To study the importance of the stage of development (of the business that is financed) for potential investors and its link with the evaluation criteria of the projects.

VCC have a specific preference as to the stage of development of the business that is to be financed. VCC that invest in the initial stages of development are more concerned with the liquidity of their investment than they are with risk management. They exercise more control on the financed business, are more likely to replace the director of the business and favour divestment more through an IPO.

Fried & Hisrisch

1994

To develop a process model for VCC investment decision-making.

The authors decide on a model for VCC investment decision-making in six stages that are: the origin of the requests; specific selection, generic selection, the first stage of evaluation, the second stage of evaluation and the conclusion of the agreement.

Knight

1994

To analyse the criteria used by VCC in Canada and compare them to those used elsewhere, namely in the U.S.

The criteria used by VCC in Canada are similar to those used in the U.S. However, investments in high technology are not as favoured in Canada as they are in the U.S. and high technology is even considered as a negative criterion in several regions of Canada.

Korsan

1994

To model the decision-making on an investment using Mathematica software in VC according to the level of risk aversion.

The theory of use, twinned with Mathematica software, allow for making better decisions.

Mull

1994

To determine why VCC and private SME that are characterized by strong growth potential interact; to determine the nature of the advantages that each group obtains through this association, the profile of the businesses that receive VC financing, and the mechanisms used in the financing process.

Businesses that are financed by VC demonstrate a high level of growth, greater than foreseen and greater than that of businesses that are not financed by VC. A low value of tangible assets, lower profitability and a shorter lifespan are the other significant deciding factors for obtaining financing. The use of convertible preferred assets is positively related to a growing risk in the business: businesses financed by VC use these securities more than businesses that are not financed by VC.

Jain & Kini

1995

To determine the value-added of VC financing by comparing performance, at the time of the IPO, of businesses that are financed by VC to those that are not financed by VC.

Businesses that are financed by a VCC demonstrate a higher operational performance than that of businesses that are not financed by VC. The market evaluates VCC influences positively as the price at the issuance of businesses financed by VC is greater than that of businesses that are not financed by VC. The quality of monitoring by the VCC is positively related to operational performance after it is listed on the stock exchange.

Murray

1996

To define the conditions for success of businesses that are financed by VCC.

The main traits that successful businesses have in common have to do with competence, the entrepreneur's exceptional track record and the competitive position of their product in a growing market.

Wright & Robbie

1996

To understand the behaviour of VCC within the context of investment decisions to guard against the potential problems of adverse selection.

The main results are: VCC use a lot of accounting information but also non-accounting information. There are differences in evaluation and they depend on the legal form of the VCC and on the stages of development. The techniques used in investment analyses also differ.

Amit, Brander & Zott

1997

To describe and analyse the VC industry in Canada.

VCC are a specialized segment of the financial market, which is primarily concerned with new private businesses. They especially emphasize industries that have reached a more advanced stage of entrepreneurial development. Moreover, one notes a predominance of buy-backs by the initiated rather than IPOs. The asymmetry of the information is one of the major causes of this situation.

Best

1997

To describe the VC industry in Canada.

In Canada, workers' funds, government funds and non-financial business funds play an important role. Close to half the funds invested in VC are placed in government funds. Contrary to what occurs in the U.S., there is very little financing dedicated to start-up businesses. Canadian VCC give less priority to high technology than does the U.S.

Gardella

1997

To study the six aspects of the selection and structuring process of investments.

To succeed, a VC investment requires experienced and proactive VCC that are disciplined but sufficiently flexible, and with sufficient capital resources.

Robin

1997

To identify the factors that investors must take into account to manage a venture capital investment portfolio well.

Investors must take into consideration the three following factors to manage a VC investment portfolio well: diversification, the timing of returns and the capital invested in relation to the redistributed capital.

Schilit

1997

To define venture capital and its use, and to study the impact of VC on the business financed and on the economy as a whole.

VCC are not only involved in financing. They spur entrepreneurship, which is responsible for economic growth.

Parker & Parker

1998

To describe the structure and the evolution of the VC industry in the U.S. and, especially, in the south-eastern part of the country.

The growth of VC in the south-eastern U.S. was promoted by the economic development of the region, by government policies that were favourable to VC investment and by the emergence of new VCC. It is foreseen that, more and more, VC will be useful for the emergence of new industries and technologies in the region.

Bliss

1999

To present the decision-making process of Polish VCC.

Several decision-making criteria used by Polish VCC differ from those used by VCC in industrialized countries.

Feeney, Haines Jr. & Riding

1999

To analyse the rejection/acceptance criteria used by private investors.

The criteria for private investors to make a decision rest on the entirety of the business opportunity as well as on the senior management of the business.

Gompers & Lerner

1999

To provide information on the different dimensions of VC and to predict the future of this type of financing.

Venture capital supply will probably continue to rise. In fact, the VC industry seems to be cyclical. Technological innovations as well as the development of regional agglomerations are among the major deciding factors for VC supply in the U.S. There are several aspects that are still to be discovered. It will be interesting to see to what extent the model of American VC can be applied and succeed around the world.

Landry

1999

To propose a model for evaluating potential investments and to identify attractive investments.

Venture capital investments must abide by the criteria of investment and satisfy the portfolio strategy of individual investors.

Murray

1999

To study the size of the VC market that finances start-up businesses.

The share of VC that goes to start-up businesses is still very weak. In fact, it is the small VCC that invest in the early stages of development.

Shepherd & Zacharakis

1999

To demonstrate the possibilities for joint analysis in VCC investment decision-making.

The authors demonstrate how this approach can assist in understanding the VCC decision-making process.

Smart

1999

To examine the methods used by the VCC to evaluate human capital in the business that is to be financed.

The proposed model explains 70% of the variance from accuracy of evaluations in human capital.

Anand & Galetovic

2000

To study the sequence of the financing of R&D activities in an environment in which the property rights to knowledge can be defined.

Where there is strict respect of property rights, research is always financed by VC. Otherwise, the model predicts that the projects can be financed either by VC or by businesses, or the projects simply remain without financing. If competition is strong, the projects have a good chance of finding financing.

Doran & Bannock

2000

To study the importance of VC funds that specialize in a specific region.

The authors conclude that VC funds specialized in a region can be an additional opportunity for cost-effective investment by public-sector funds.

Dufresne

2000

To determine the influence of VCC on the organizational development of SME.

The main hypothesis of the research that VCC intervention stimulates the organizational development of SME is partly confirmed. The lack of representation in the sample and the aggregated variables that are used can explain the weak results that were obtained.

Ferjani

2000

To develop and validate a model of the decision-making process of Quebec VCC and determine the influence of the ownership structure of the VCC on the investment decision-making process.

The author identifies five phases in the investment process (the origin of the projects, selection, evaluation, structure, post-investment activities). The proposed model explains the reality of VCC in general terms. Finally, the author notes that the ownership structure of VCC has no considerable impact on the decision-making process used.

Ferjani, Mathieu & Beaudoin

2000

To determine the influence of the ownership structure on the decision-making process of three Quebec VCC.

The five stages in the decision-making process are: origin of the request for financing, selection, evaluation, structuring and post-investment activities. The differences noted between the VCC are explained by their mission (and, therefore, by their investment criteria). However, regardless of their mission, the three VCC that were analysed use regular shares as financing instruments and evaluate the quality of the managerial team before investing and divestiture is total.

Heidrick & Keddie

2000

To do a summary of VC "best practices" in the U.S.

"Best practices" in VC financing are related to the following initiatives: the SBIC program; financial incentives; gains realized on projects; tax exemption for public financial securities; and the law for reducing the tax burden on taxpayers in 1997.

Infometrics Ltd.

2000

To present the evolution of the venture capital market in New Zealand.

In New Zealand, the VC market is still relatively young but growing. Moreover, it tends to be segmented.

Laperche & Bellais

2000

To describe and study various VC risks and the role of large business in the financing of innovation achieved by small businesses.

Several techniques can be used by the VCC to reduce the risks it faces. Public authorities can also help by offering guarantees or subsidies. Large businesses can benefit from the growth of small technological businesses that receive such assistance because the latter are a link in the strategy of large businesses.

Manigart, Waele, Wright, Robbie, Desbrières, Sapienza & Beckman

2000

To analyse the various approaches and information used in valuation.

The results of the study show differences in the information used in pre-valuation and valuation methods by VCC in five different countries. Reputation and contracts are more important in economies based on networks (France, Belgium) than on economies based on the market (United Kingdom, U.S.)

Van Osnabrugge

2000

To compare the decision-making process of VCC (formal market) to that of business angels (informal market).

To reduce agency problems at all stages of financing, business angels take the approach of "incomplete contracts" whereas the VCC use the "principal-agent" approach.

Brush, Carter, Gatewood, Greene & Hart

2001

To examine relationships between VC and businesses managed by women.

The authors draw a picture of businesses managed by women that have obtained VC. A comparison between these businesses and those managed by male entrepreneurs is also done.

Clendenning & Associates

2001

To present the issues surrounding equity financing of Canadian SME such as venture capital, IPO and post-IPO equity financing to direct Industry Canada's future research in this area.

Analysis shows that questions related to venture capital, the IPO, and post-IPO are important to the development of SME. The structure of the venture capital market in Canada, the behaviour and expertise in venture capital management by Canadian investors, the participation of Canadian institutional investors, the taxation system and the trans-border interaction of the Canadian and American markets are also factors that can compromise the competitiveness of Canadian SME.

Cumming (b)

2001

To determine the factors that affect the size of the VCC (business) portfolio.

The determining factors of the size of the business portfolio of a VCC are: VC fund characteristics (type of fund, life of fund, the possibility of raising funds), the characteristics of financed businesses (stages of development, technology used) and the nature of the financial transactions (staging rounds, syndication, structure of the capital).

Cumming (a)

2001

To determine the optimal structure of contracts that deal with the syndication of agreements between VCC.

The author develops a model according to which, under specific conditions, lead VCC use preferred stock and the follow-on VCC use convertible debt. This model is upheld by a sample of Canadian companies.

De Clercq, Goulet, Kumpulainen & Mäkelä

2001

To analyse VCC portfolio strategies.

VCC tend to specialize in a given industry, to diversify their business portfolios geographically and to diversify investments according to different stages of growth.

Erikson & Nerdrum

2001

To evaluate the entrepreneurial capability of founding senior managers of businesses.

The authors propose an analytical model of entrepreneurial capability (defined as being the ability to identify new opportunities, to collect and coordinate rare resources) of founding senior managers.

Greene, Brush, Hart & Saparito

2001

To see if the gender of the entrepreneur can have an influence on getting VC financing.

Results of the study suggest certain explanatory elements for the small number of businesses directed by women who obtained VC.

Kaplan & Strömberg

2001

To compare the contracts and actions of the principals (the VCC) in the real world to what occurs in theory as regards financing contracts.

The three means used by the VCC to mitigate agency conflicts and which are suggested by the theory are: close management of the contract, pre-investment selection and monitoring activities.

Megginson, Wang & Chua

2001

To study the signal power of traditional and technological factors, and their stability.

The authors conclude that traditional factors (for example, under-evaluation and the reputation of underwriters) have more signal power and are more stable, whereas technological factors, such as R&D personnel, have more long-term effects.

Moesel & Fiet

2001

To study the decision-making process of VCC investing at start-up stages.

VCC use cognitive representation to evaluate the risk of the business. The process is iterative until a stable interpretation is obtained.

Moesel, Fiet & Busenitz

2001

To study how VCC evaluate business risks.

The model of cognitive representation is explained and used to understand how VCC evaluate the risk of new businesses that have a strong growth potential.

Randjelovic

2001

To study the relationship between VC and businesses that are starting up in the field of environmental protection.

VCC in the environment sector are financially more fragile than "normal" VCC. Nevertheless, there is great potential for environmental development through VC.

Tacis

2001

To present the VC situation in Russia.

The majority of sums invested in VC funds in Russia come directly from abroad. Moreover, there is a lack of VC for high technology industries. The government is trying to implement measures that would promote demand as well as supply in VC.

Axiss Australia

2002

To present the VC industry in Australia.

In Australia, venture capital has undergone constant evolution during the 1996-2000 period. Most investments were directed towards the service, information/computer technology and health/bioscience sectors. Moreover, one notes a certain willingness to promote initial stages of development.

Brander, Amit & Antweiler

2002

To do a model and test two possible reasons for syndication: the selection of projects and complementary competence in management.

Investments from syndication show greater returns than where there is no syndication.

Callahan & Muegge

2002

To study the influence of the role of VCC in the innovation process.

VC can promote innovation.

Dietz

2002

To analyse the segmentation of the market between VC and the banks.

Risky projects go to venture capital whereas projects with little risk go to the banks.

Dix & Gandelman

2002

To present a model of choice between keeping R&D results "in one's laboratory" versus starting a business.

The authors conclude that, within the context of asymmetry of information, "good quality" projects are financed by VCC whereas those of "lesser quality" stay in the laboratory. The authors identify two types of risk: intrinsic quality risk and external shock risk. The higher the intrinsic risk of a project and the harder the supervision, the higher the likelihood that the project will be financed outside.

Douglas & Shepherd

2002

To study the differences in perception between potential investors and the business as to the potential for financing of a project in Australia.

New business are frequently perceived as being better organized in terms of their marketing plan and management than they are technologically. Moreover, investors and entrepreneurs perceive differently the readiness of the VCC in the project (in terms of technology, marketing and management, all fields included).

Gompers

2002

To study the structure, evolution and performance of VC financing by non-financial businesses.

Corporate venture capital from non-financial businesses is frequently concentrated in a specific industry. Moreover, investments from non-financial businesses are more successful than investments made by independent VCC. It seems that large non-financial businesses have learned much from the "best practices" of the independent VC sector.

Hall

2002

To look for proof of the presence of a finance gap in the case of R&D.

The author concludes that R&D projects are faced with very high financing costs that are partially mitigated by VCC. Thus, VC does not resolve all problems, especially in countries where the capital market is not very developed. The author suggests that the government concern itself more with financing at the pre-start phase.

Inderst & Müller

2002

To study the relation between optimum VC contracts and the structure of the market.

The rights and powers of VCC and of businesses financed by the latter depend on the structure of the market. The performance and the probability of success of businesses financed by VC depend, therefore, on the supply and demand of venture capital.

Jones & Rhodes-Kropf

2002

To determine the relationship between risk and the cost of capital on the venture capital market.

Competition among the VCC does not consist of finding the best projects but of finding the most projects given that that reduces the non-systematic risk of the VCC.

Kari

2002

To use real option valuation within the context of VC financing and determine the conditions under which this approach should be used.

The primary points emerging from this study are: most of the time, the process of VC investment results in imprecise valuations. Real options valuation should only be used in specific places in the VC investment process and under specific conditions, and the method is not exempt from error.

Lockett & Wright

2002

To present an overview of the VC market in Asia and in Pacific-rim countries.

The differences are found in the following: the context of the VC investment, selection, evaluation, assistance, value-added and exit strategies.

Lockett, Wright, Sapienza & Pruthi

2002

To compare the approaches used for evaluation and the sources of information used by the VCC in the U.S., Hong Kong, India and Singapore.

Results of the study show the significant differences in terms of evaluation of assets, returns before interest and depreciation, the sources of information used, due diligence, information on sales and the product as well as the entrepreneur.

Mueller & Inderst

2002

To study the influence of the capital market on the value of start-up businesses.

Capital supply, the degree of competition in the capital market, the costs of entry and the transparency of these markets are features of the capital market that influence start-up businesses. Government policies (for example, the capital gains tax), which can positively influence the capital market, also have positive impacts on start-up businesses. Moreover, when the supply of capital is low (high), the VCC are more (less) likely to select projects.

Nuechterlein

2002

To study the role of financing on businesses starting up in the U.S., Europe and in Asia.

The U.S. provides the most favourable environment for start-up businesses compared to other countries in the world, whereas the United Kingdom surpasses the countries of Europe. In Asia, Taiwan benefited from an entrepreneurial culture and a very dynamic small business sector.

Schwien-
bacher (b)

2002

To compare the behaviour of American and European VCC.

The main similarity between the U.S. and Europe is in the intensity of monitoring. The main differences are in: duration before exits (a trade sale is the one most used in Europe), the use of convertible securities, replacing the initial manager and syndication. The primary reasons for these differences are the poor liquidity of European financial markets and the fact that the sale is less risky for young VCC.

Ueda

2002

To make a model of the choice of financing by entrepreneur: banks or VC.

The entrepreneur's fear of having his project stolen by the VCC, and the fact that the VCC can evaluate the business better, influence the choice of financing. The author suggests that better protection of intellectual property could favour the VC industry.

Vinig & De Haan

2002

To analyse the selection process on the basis of the business plan in the U.S. and in the Netherlands.

The authors present and compare the different criteria used by the American VCC and those in the Netherlands.

Chemmanur & Chen

2003

To make a model of the choice of entrepreneur between business angels and the VCC.

The choice depends on four factors: which of the business angels and the VCC can generate the most value, the asymmetry of information, information research costs and the efforts of the entrepreneur. The dynamic model contains several rounds of financing; contracts that involve business angels differ from those that involve VCC; and the projects financed by business angels differ from those financed by the VCC.

Carter & Van Auken

1994

To study the importance of the stage of development (of the business that is financed) for potential investors and its link with the evaluation criteria of the projects.

VCC have a specific preference as to the stage of development of the business that is to be financed. The VCC that invest in the initial stages of development are more concerned with the liquidity of their investment than they are with risk management. They exercise more control on the financed business, are more likely to replace the director of the business and favour divestment more through an IPO.

Fiet

1995

To compare the strategies used by the VCC to protect themselves against risks against those used by business angels.

Business angels are more concerned with potential agency risk than market risk, whereas the opposite is true for VCC. This is because VCC have already guarded against agency risk through contracts. This difference in approach constitutes a segmentation in the VC market.

Laperche & Bellais

2000

To describe and study various VC risks and the role of large business in the financing of innovation achieved by small businesses.

Several techniques can be used by the VCC to reduce the risks it faces. Public authorities can also help by offering guarantees or subsidies. Large businesses can benefit from the growth of small technological businesses that receive such assistance because the latter are a link in the strategy of large businesses.

Moesel & Fiet

2001

To study the decision-making process of VCC investing at start-up stages.

VCC use cognitive representation to evaluate the risk of the business. The process is iterative until a stable interpretation is obtained.

Moesel, Fiet & Busenitz

2001

To study how VCC evaluate business risks.

The model of cognitive representation is explained and used to understand how VCC evaluate the risk of new businesses that have strong growth potential.

Dix & Gandelman

2002

To present a model of choice between keeping R&D results "in one's laboratory" versus starting a business.

The authors conclude that, within the context of asymmetry of information, "good quality" projects are financed by VCC whereas those of "lesser quality" stay in the laboratory. The authors identify two types of risk: intrinsic quality risk and external shock risk. The higher the intrinsic risk of a project and the harder the supervision, the higher the likelihood that the project will be financed outside.

Jones & Rhodes-Kropf

2002

To determine the relationship between risk and the cost of capital on the venture capital market.

Competition among the VCC does not consist in finding the best projects but in finding the most projects given that that reduces the non-systematic risk of the VCC.

Crocker & Reynolds

1993

To verify the relevance of a contract that has purposely been left incomplete.

The authors show that it is frequently more efficient to leave financing contracts "incomplete". This type of contract allows one to minimize the various costs related to rigid contracts should there be contractual modifications.

Norton & Tenenbaum

1993

H1: Preferred assets are the financing instruments most used in VC.

H2: Small and specialized VCC (in other words, those less diversified) will be more likely to pool funds (principle of syndication).

Both hypotheses are confirmed: preferred assets are the financial instruments that are most used in VC and the smaller and less diversified VCC use the pooling of equity capital more often.

Admati & Pfleiderer

1994

To examine the role of VCC to resolve agency problems.

The authors suggest that the optimum contract for resolving agency problems is the "set fraction" type. The latter is equivalent to the principle of co-insurance whose purpose is to make both parties accountable.

Barney, Busenitz, Fiet & Moesel

1994

To determine the factors that influence the alliance contract and the relationship between the VCC and senior management.

Contracts that limit opportunistic behaviour (managerial and competitive) are used when there are obstacles to monitoring and when the returns of new start-up businesses are high.

Barry

1994

To list the articles that deal with VC and propose avenues of research.

Many authors explain what VCC do but do not show their added value on the businesses that are financed. The other avenues of research deal with the following questions. Should the businesses continue to find formal VC or would they do better to find other sources of financing? Why are business angels' investments important? Do the latter sacrifice returns or are formal VC investments more cost-effective? What are the ideal forms of divestment and under what conditions should they occur?

Mull

1994

To determine the reasons that explain why VCC and private SME, which are characterized by strong growth potential, interact; to determine the nature of the advantages that each group obtains through this association, the profile of the businesses that receive VC financing, and the mechanisms used in the financing process.

Businesses financed by VC demonstrate a high level of growth, greater than foreseen and greater than that of businesses that are not financed by VC. A low value of tangible assets, lower profitability and a shorter lifespan are the other significant deciding factors for obtaining financing. The use of convertible preferred assets is positively related to a growing risk in the business: businesses financed by VC use these securities more than businesses that are not financed by VC.

Trester

1994

To analyse the impact of information asymmetry on the financing contract.

Within the context of information asymmetry, debt financing is impossible and only financing using preferred shares is possible. An empirical study confirms these results: preferred share financing is used at the first stages of development (where information asymmetry is very high) and debt financing is used at more advanced stages (when information asymmetry is lower).

Norton

1995

To study how the VCC can guard against the agency problem through the decision-making process on financing.

The author notes that the agency theory can explain practices used throughout the stages of the financing process, which are: to find funds, to select projects, structure the terms of the investment, to supervise the investment and to plan the exit.

Bergemann & Hege

1998

To present a dynamic model to examine the methods used by VCC to settle agency problems.

The optimal contract is one of "shared responsibility" where each portion varies with time and according to the risks incurred. Monitoring and the occasional replacement of the responsible official improve the efficiency of the financing contract.

Black & Gilson

1998

A comparison of the vitality of the VC industry in the U.S. to that in other countries.

The vitality of VC in systems centred on stock markets (U.S.) is better than that in a system centred on banks (Germany or Japan). The article gives the various possible reasons for such a situation and models explicit and implicit contracts between investors and the VCC and between the VCC and the business.

Hellmann

1998

To study why, and under what conditions, entrepreneurs voluntarily give up control of their business.

Entrepreneurs who have financial constraints can give up control even if the change in management leads to a loss of personal benefits that is greater than the monetary gain for the company.

Marx

1998

To find the optimal structure of a contract within the framework of venture capital.

The model proposed by the author shows that the contracts that combine both debt financing and equity financing are more efficient than those that only use either debt financing or equity financing.

Reid

1999

To verify the relevance of the agency theory for financing small enterprises.

The results of the study confirm the relevance of the principal-agent model to explain VC financing of mature small enterprises in the United Kingdom. Moreover, the most important term perceived in the contract is capital structure.

Bascha

2000

To explain why the VCC use different forms of financing.

The author presents theoretical conditions according to which different combinations of financing are used.

Cornelli & Yosha

2000

To examine the advantages of financing in stages and of convertible debt.

Legal priority ranking favours financing by convertible debt as a mechanism of protection against non-optimal short-term behaviour by the entrepreneur.

Kaplan & Strömberg

2000

To compare the characteristics of contracts in practice to that which is envisaged in academic studies.

The characteristics of financing contracts resemble what the theories on control and selection predict. Real contracts and theories share the following characteristics: (1) convertible securities are the most used financial instruments; (2) voting rights, rights to cash flow, control over financing rounds and other rights are often conditional on financial and non-financial performance; (3) the VCC gets full control if the company does not perform; and (4) frequently, VCC include provisions to take advantage of a potential "hold up" problem between the business and the investor.

Repullo & Suarez

2000

To explain the impact of moral hazard on the form of financing contracts and on the contributions of the entrepreneur and of the VCC.

Convertible securities are often the most used as they are well adapted to the environment characterized by financing in stages and to the problem of moral hazard as far as the efforts of the entrepreneur and of the VCC are concerned.

Tykvova (b)

2000

To study financing contracts from the point of view of economists.

Contracts influence the behaviour of VCC and of entrepreneurs. The main clauses of these contracts are intense monitoring, the evaluation procedure, active involvement of the VCC, financing rounds and the choice of financing means such as convertible securities, syndication and the period of investment.

Bascha

2001

To explain why VCC use convertible financing or financing combinations using shares or share options.

Financing through incentive compatible venture capital contracts allows for better disclosure of information of each participant rather than a combination of debt and equity capital.

Bascha & Walz

2001

To study the differences in behaviour and the control mechanisms used by the VCC depending on the type of fund.

Private VCC tend to demand a higher return than public VCC. Private VCC tend to be refinanced by closed-end funds. The size (in number and quality) of public actors in Germany is one of the causes of the infrequent use of convertible securities and the dominance of silent partnerships as financial instruments. The use of convertible securities depends on the severity of agency problems.

Garmaise

2001

To construct an SME financing model whereby the external investor has more expertise in project evaluation than the entrepreneur.

The authors demonstrate that the two parties limit themselves to debt and junior equity call options where the preference is options on shares.

Hellmann

2001

To find explanations for the use of convertible securities.

The primary characteristic of convertible securities is to create different rights to cash flow in terms of IPO and acquisitions. The article explains how convertible securities present an optimal compromise between the need to distribute cash flows to VCC and the wish to achieve an efficient exit.

Kaplan & Strömberg

2001

To compare the contracts and actions of the principals (the VCC) in the real world to what occurs in theory as regards financing contracts.

The three means used by VCC to mitigate agency conflicts and which are suggested by the theory are: close management of the contract, pre-investment selection and monitoring activities.

Klausner & Litvak

2001

To prepare a synthesis of the clauses found in financing contracts used by the VCC and of agreements between partners in limited partnerships specialized in VC.

The authors do the synthesis.

Schmidt

2001

To justify the use of convertible securities in financing contracts.

Financing using convertible securities is more efficient and allows for a better distribution of monetary flow than financing that combines loans and regular assets.

Smith

2001

To analyse contractual clauses to see how conflicts on exit strategies can be resolved.

The authors conclude that the parties negotiate their contract so as to leave sufficient freedom to the entrepreneur in the beginning and to increase the threat of exit as time goes by.

Triantis

2001

To present the characteristics and determinants of VCC contracts.

The distinctive character of venture capital is its great use of convertible securities. According to the author, a model based on information asymmetries is not sufficient to explain contract forms.

Wasserman

2001

To study the first time that the founder gives up control (first generation).

Financing rounds are one of the important reasons for the departure of the founders.

Whincop

2001

To analyse on a theoretical basis the management of SME businesses in the search for financing.

The author concludes that the contract negotiated between the VCC and the entrepreneur is "put on the shelf" and an atmosphere of cooperation is favoured. If problems occur, the contract will play a more important role.

Ayayi

2002

To determine the capital structure of an entrepreneur faced by a VCC at the very beginning of a venture when the financial contract must be negotiated within the context of adverse selection.

The author shows that equity capital allows the VCC to create optimal ex-ante value, to expect high profits and to increase social welfare substantially. Debt-linked securities are not optimal for this model. These results are confirmed by Canadian experience.

Bergemann & Hege

2002

To explain financing using VC in a multi-period environment where the length of time and the amount of the investments are unknown.

The model allows to explain why financing rounds are optimal and why the amounts invested are more and more important. A benchmarking approach allows reaching excellence at each round and reduces agency costs. Other conflicts and their resolutions are explored.

Bigus (a)

2002

To analyse the problem of the quality of information (moral hazard) in a decision to finance by VC.

The control requested by the external investor (the VCC) depends on the quality and the abilities of the entrepreneur. Superior quality will be associated with greater control by the investor who wants to profit from the situation. To mitigate this expropriation of control, financial instruments (one-time debt or a combination of financing tools is only preferable to capital-shares) and syndication can be used.

Bigus (b)

2002

To explain why financing in stages (financing rounds) promote opportunistic behaviour on the part of the entrepreneur.

The solution for impeding or reducing opportunistic behaviour is cost-sharing. This can be done by residual claims financing whose revenues depend on the performance of previous stages.

Bratton

2002

To examine the contractual aspects in VC, namely the possibility of replacing managers and the protection of the contract itself.

Contractual agreements have evolved and improved. But they are still incomplete and imperfect. The author notes that some of these contracts cause harm to the entrepreneur.

Casamatta

2002

To analyse the joint efforts of the entrepreneur and a consultant to improve the productivity of an investment.

Financing is endogenous to the model and the appearance of VCC is the solution to this problem of "effort management". If the amount to be financed is small, capital-shares is the optimal means of financing. Otherwise financing using convertible debt is preferable.

Cestone

2002

To develop a model for the allocation of rights on monetary flow and on control in the financing contracts.

The author concludes that the entrepreneur should keep control when the financing instrument is very risky.

Cornelius & Cooper

2002

To use the games theory to examine the relationship between contractual clauses in VC agreements to each stage of investment and the influence of the two parties in the choice of these clauses.

The results of their model were tested. The article concludes that the preferences of the parties involved did not reflect in the clauses which, naturally, contradicts the forecast of the model. A more in-depth analysis is made.

Cumming (c)

2002

To analyse the practical considerations of the problems of adverse selection in VC investment.

Financing contracts reveal information on the nature of the uncertainty that the VCC face.

Cumming (b)

2002

To analyse the contracts and exit strategies in the European market.

Financial contracts are very heterogeneous regarding rights on monetary flow and on control. The exit strategy and the revenues made by the VCC depend on these rights and on the characteristics of the businesses.

Cumming & MacIntosh (b)

2002

To make a model of the length of VC investments by the type of entrepreneur to reduce the information asymmetries between the VCC and the new acquirers, and to maximize capital gains.

The authors conclude that length of time is influenced by the stage of development of the business, the capital available in the industry and whether the exit strategy has been planned in case of a non-solicited offer. These results apply as much to the U.S. as they do to Canada.