Venture Capital and Private Equity Contracting

Chapter 21. Contracts and Exits

21.1. Introduction and Learning Objectives

Venture capital (VC) financial contracts separately allocate cash flow and control rights (Chapters 10–14). In these contracts, the control rights might include the right to replace the CEO, among various other specific veto and control rights. Because entrepreneurs are likely to enjoy the private benefits of being the CEO of a publicly listed firm (Chapters 10–14), even when an acquisition is financially superior to an IPO, an entrepreneur might prefer the IPO because of the private benefits. Therefore, the structure of entrepreneurial private benefits leads to two empirical predictions. First, if a venture is less promising and/or the likelihood of a conflict in exit ...