"exceptionally clear evidence on the importance of financial contracting"

-- Joe McCahery, Professor of Corporate Governance and Business Innovation, University of Amsterdam, Amsterdam Center of Law and Economics

Chapter 21

Contracts and Exits

Venture capital financial contracts separately allocate cash flow and control rights. In these contracts, the control rights might include the right to replace the CEO, among various other specific veto and control rights. Because entrepreneurs enjoy the private benefits of being the CEO of a publicly listed firm, even when an acquisition is financially superior to an IPO, an entrepreneur might prefer the IPO because of the private benefits.

In this chapter we will:

• Consider how the allocation of cash flow, veto and control rights influences the probability of achieving different exit outcomes;
• Consider a detailed dataset in order to assess the relations between contracts and exits.