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Handbook of Research on Venture Capital

Edited by Hans Landström

This Handbook provides an excellent overview of our knowledge on the various facets of managerial venture capital research. The book opens with a thorough survey of venture capital as a research field; conceptual, theoretical and geographic aspects are explored, and its pioneers revisited. The focus then shifts to the specific environs of venture capital.
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Chapter 5: The Structure of Venture Capital Funds

Douglas Cumming, Grant Fleming and Armin Schwienbacher


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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