Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/244681 
Year of Publication: 
2020
Series/Report no.: 
LawFin Working Paper No. 1
Publisher: 
Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin), Frankfurt a. M.
Abstract: 
This paper investigates the implications of the fair value protections contemplated by the standard corporate contract (i.e., the standard contract form for which corporate law provides) for the entrepreneur-venture capitalist relationship, focusing, in particular, on unavoidable value-destroying trade sales. First, it demonstrates that the typical entrepreneur-venture capitalist contract does institutionalize the venture capitalist's liquidity needs, allowing, under some circumstances, for counterintuitive instances of contractually-compliant value destruction. Unavoidable value-destroying trade sales are the most tangible example. Next, it argues that fair value protections can prevent the entrepreneur and venture capitalist from allocating the value that these transactions generate as they would want. Then, it shows that the reality of venture capital-backed firms calls for a process of adaptation of the standard corporate contract that has one major step in the deactivation or re-shaping of fair value protections. Finally, it argues that a standard corporate contract aiming to promote social welfare through venture capital should feature flexible fair value protections
Subjects: 
Private equity
Venture capital
Start-ups
Entrepreneurship
Innovation
Corporate governance
Private ordering
Drag-along rights
Trade sales
Corporate law
Fair value
Appraisal rights
Law and economics
Law and finance
JEL: 
K22
M13
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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