Law, Finance, and Venture Capital: The Cost of Capital for High-Tech Firms

Abstract

We use data from a professionally-conducted survey of high-technology managers to examine international variation in private equity contracting and cost of capital. Employing new variables and analyzing hundreds of financing rounds in the U.S., Europe, and Israel, we find that investor sophistication is associated with the ownership ratio (amount raised/valuation), but that funding rounds in common law countries do not receive lower ownership ratios vis-a-vis those in civil law countries. We also find that the institutional environment matters for exit strategy and valuation.