United States Venture Capital Financial Contracting: Foreign Securities

Abstract

U.S. venture capital financings of U.S. entrepreneurial firms with up to 213 observations are consistent with the proposition that convertible preferred equity is the optimal form of venture capital finance. This paper introduces new evidence from 208 U.S. venture capital financings of Canadian entrepreneurial firms. In contrast to U.S. venture capital investments in U.S. entrepreneurial firms, U.S. venture capitalists finance Canadian entrepreneurial firms with a variety of forms of finance. The differences between domestic and international U.S. venture capitalist financing structures are not attributable to differences in the definition of the term ‘venture capital’. The data point to the importance of institutional determinants of venture capitalist capital structures within the U.S. and abroad. Among other things, the data indicate that U.S. venture capitalists often do not choose convertible preferred shares in the absence of tax considerations in favor of that financing vehicle.

Citation

Cumming, D.J. (2007), "United States Venture Capital Financial Contracting: Foreign Securities", Hirschey, M., John, K. and Makhija, A.K. (Ed.) Issues in Corporate Governance and Finance (Advances in Financial Economics, Vol. 12), Emerald Group Publishing Limited, Leeds, pp. 405-444. https://doi.org/10.1016/S1569-3732(07)12016-8