Finance

Business

Equity (law)

Investment (military)

Intervention (counseling)

Corporate governance

Politics

Psychiatry

Shareholder

Political science

Management

Psychology

Economics

Cash flow

Microeconomics

Control (management)

Venture capital

Portfolio

Incentive

Agency cost

The Journal of Finance

ABSTRACT We study the investment analyses of 67 portfolio investments by 11 venture capital (VC) firms. VCs describe the strengths and risks of the investments as well as expected postinvestment actions. We classify the risks into three categories and relate them to the allocation of cash flow rights, contingencies, control rights, and liquidation rights between VCs and entrepreneurs. The risk results suggest that agency and hold‐up problems are important to contract design and monitoring, but that risk sharing is not. Greater VC control is associated with increased management intervention, while greater VC equity incentives are associated with increased value‐added support.

Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses