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Venture Capital and Private Equity Contracting by Sofia A. Johan, Douglas J. Cumming

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Chapter 23. Summary and Concluding Remarks

Venture capital and private equity funds hold small portfolios of entrepreneurial firms that are not well diversified, although this enables fund managers to take their time carrying out extensive due diligence before investments are made and to sit on boards of directors, monitor management, and add value to the enterprise by providing strategic, financial, marketing, human resource, and other advice during the investment life. However, because such funds are not diversified, idiosyncratic risk matters; because idiosyncratic risk matters, agency costs matter, and thus the design of financial contracts matters.

This book is the first of its kind in the literature on venture capital and private equity ...

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