Chapter 5: The Structure of Venture Capital Funds
Douglas Cumming, Grant Fleming and Armin Schwienbacher Introduction Venture capital funds perform a vital intermediary role in the ﬁnancing of entrepreneurial ﬁrms and the spurning of new technology and knowledge in an economy. These funds can take a variety of diﬀerent organizational and legal forms, including limited partnerships, investment trusts, corporate subsidiaries, ﬁnancial institution subsidiaries and government funds. The variety of forms is reﬂective of the way in which the venture capital market has developed over the last forty years, becoming increasingly institutionalized and internationally active. Academic research has followed these market developments in a quest to analyse and explain how institutional markets emerge, what structures characterize them, and how venture capitalists behave. The research literature on the structure of venture capital funds is still relatively young. And yet the topic is important because the structure of venture capital funds lies at the heart of the way in which the institutional venture capital market works. The institutional market involves professional venture capitalists investing on behalf of their investors in entrepreneurial ﬁrms. The structure of these relationships is a combination of explicit and implicit contracts that regulate and guide how venture capital ﬁnance, skills and expertise is delivered to entrepreneurs. In some cases, venture capitalists are loosely governed by covenants through limited partnerships, and ‘live or die’ by their investment success. In other cases, more formal bureaucratic structures impinge on the delivery of venture capital. Our review of the research on the structure of venture capital funds brings together...
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