Stefan Duffner

Young growth companies are an important driver for innovation, structural change and growth in any economy. However, for these effects to take place, it is a prerequisite for such young growth companies to find financing to fund their growth path. This is very difficult for such firms as banks are rather conservative in their lending strategies and entrepreneurs themselves typically are wealth-constraint. Venture capitalists are financial intermediaries, who are specialized in the provision of funds to such young growth companies. Their skills include the selection of potentially successful ventures, the writing of complex financial contracts, and the provision of management support to nurture the young growth companies in their portfolio. Duffner (2003) gives an overview of the venture capital market.

As such young growth companies are typically marked by a lack of financial history to rely on and by a high degree of uncertainty, conflicts of interest between the venture capitalist and the entrepreneur play a particularly important role. The conflicts of interest between venture capitalist and entrepreneur are mainly based on the fact that venture capitalists aim to earn a high rate of return on their investments, while entrepreneurs have social recognition and lifestyle as additional intentions. This leads to conflicts regarding 1) the riskiness of returns, 2) the ownership shares, and 3) the return-focus of the activities. These conflicts can be structured into several categories of socalled agency problems.

The analysis is organized as follows. Before the discussion of real world situations can start, three building blocks have to be established. The first building block discussed in this first chapter refers to the agency problems in investor-entrepreneur financing relationships. The second building block in chapter 2 deals with the mechanics of venture investments, i.e. with valuation, risk and financing securities. Chapter 3 and the third building block introduces the complex real world contract structures and common clauses contained in these contracts. Using these three building blocks chapter 4 then takes a macro perspective and surveys existing literature regarding the use of certain clauses in a large number of financing contracts. Chapter 5 considers a detailed case study: NewDent AG. It takes on a micro perspective analyzing this one company’s financing history, which can create an understanding of why exactly certain financing structures are used. Chapter 6 finally concludes the study.

Jahr | 2005
Preis | CHF 30.00