Using a sample of European venture capital investments, this chapter studies the relation between venture capital contracts and exits. The data indicate that ex ante, stronger venture capital control rights increase the likelihood that an entrepreneurial firm will exit by an acquisition rather than through a write-off or an IPO. The findings are robust to controls for a variety of factors, including endogeneity and cases in which the VC preplans the exit at the time of contract choice. The findings are consistent with control-based theories of financial contracting, such as Aghion and Bolton (1992).
Venture capital contracts; cash flow and control rights; exit; IPO; acquisition; liquidation; write-off