Abstract
In <b>The Role of Contracts in Venture Capital Returns</b>, published in the Fall 2021 issue of <b><i>The Journal of Alternative Investments</i></b>, <b>Sarina Liu</b> of <b>Wells Fargo</b> creates a novel dataset to empirically test the hypothesis that traditional methods overestimate the post-money value of startup firms. Data about contract terms display four general convertible preferred stock types that are often provided to venture capitalists (VCs). After combining the data on contract terms with two additional datasets, the author analyzes cash flows to the VCs, revealing several interesting statistics regarding early- and late-stage investors in small and large acquisitions for each of the four types of convertible preferred stocks. While possible outcomes include failures, acquisitions, or initial public offerings (IPOs), most involve small acquisitions. Importantly, the traditional method for estimating the post-money value is inaccurate because the assumption of using common stock does not capture the significant added value of preferred stock.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.