Venture Capital and Private Equity Contracting

Chapter 20. Exit Outcomes

20.1. Introduction and Learning Objectives

Early-stage high-tech firms generally do not have sufficient cash flow to pay interest on debt and/or dividends on equity investments; hence, venture capital fund returns are derived from capital gains upon exit transactions. Venture capital fund managers are widely regarded as being experts at due diligence in screening potential investments and adding value to their investee entrepreneurial firms through sitting on boards of directors and providing financial, strategic, marketing, and managerial advice, as well as facilitating a network of contacts for investee firms with suppliers, accountants, lawyers, and investment banks (Bascha and Walz, 2001; Bergmann and Hege, 1998; ...