Venture Capital Financing

Venture capital funds finance privately held entrepreneurial firms in their earliest stages of development. Financial contracts between venture capitalists and entrepreneurs specify both cash flow and control rights, and these rights are independently allocated.

In the United States, financing terms are typically set out with convertible preferred equity, and there is a unique tax bias in favor of the use of convertible preferred equity. In contrast, in all non-U.S. countries where data have been collected, a variety of securities are used by venture capitalists and common equity tends to be the most frequently observed security; for evidence from developing countries.

U.S. venture capitalists that finance entrepreneurial firms based in Canada use a variety of securities, and common equity is used most frequently. The use of different securities in venture capital financing arrangements depends on expected agency problems, and differences in institutional features across countries.

Venture Capital Financing
Venture Capital Financing
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