Convertible Preferred Stock in Venture Capital Financing
- Topics:
- Commercial Lending,
- Venture Capital
- Tags:
- Convertible Preferred Stock,
- Finance,
- Financial Accounting,
- Financing Startups,
- Investment,
- Investor,
- University Of Oxford,
- Venture Capital
- Source:
- University of Oxford
FREE Registration is required
Overview: This paper provides an explanation for the widespread use of senior convertible preferred stock in venture capital financing. One develops a model of cash constrained entrepreneurs who need an investor to finance their project. Investors can either be uninformed, such as small individual bondholders, or informed, such as venture capitalists and banks. There is an entrepreneurial moral hazard problem, which can be partially overcome through monitoring only by informed investors. However, monitoring is only effective if investors can commit ex ante to liquidate the project after observing a poor signal.
(Is this item miscategorized? Does it need more tags? Let us know.)
Format: PDF | Size: 418KB | Date: Mar 2006 | Pages: 28
