opportunistic contracts and behaviour exit strategy agency problems etc content

Opportunistic contracts and behaviour exit strategy

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: opportunistic contracts and behaviour, exit strategy, agency problems, etc.; content of contracts: control of the business financed, rights to cash flow, departure of the founders, management of the business, international comparisons, etc. There is heavy borrowing from the agency theory to explain the drafting of financing contracts between VCC and business. Opportunistic behaviour of entrepreneurs, the need for monitoring, the problems of moral hazard or of asymmetric information have all been studied in different contexts to allow for the drafting of contracts that are judged to be “optimal” for the VCC. Are these contracts equally optimal from the entrepreneur’s point of view? Very little is said about this. Also, there is little discussion, and the little there is often theoretical in nature, concerning the means of measuring agency problems, opportunistic behaviour, or moral hazard and asymmetric information; and yet, these elements are at the centre of contract definition and of the establishment of conditions for financing. That which is arbitrary, or elements of perception, seem to be more the rule in the preparation of financing contracts, especially for innovation projects. Better knowledge is needed of the ways in which the VC market really works. Are there “typical” contracts that are more often associated with successful investments? Can the flexibility of a contract be a factor in the success of the SME? Convertible securities and combinations of securities seem to be the financing strategies with the most “payback”. Their use depends on information conditions, on the climate of confidence and on the maturity and risk of the business that is financed. Along the same lines, these strategies protect the rights of VCC. There is much said about the rights of VCC but little about those of the business that is financed. This needs to be looked into, as it might explain why only a very small number of businesses are turning to VC to finance their projects. Some texts deal with the dismissal of the founder by the VCC after numerous rounds of financing, but they do not discuss the consequences from the standpoint of the development of the business and its capacity for growth and for future innovation. Finally, the literature says nothing on the specific traits of entrepreneurs and the importance of their investment in the business to facilitate the financing of their projects and to bring the relationship between the business and the VCC closer to that of a collaboration and a partnership. 3.2.4 The deciding factors in the involvement of VCC in the SME This subject is not well developed, but the following aspects are dealt with: the involvement by the VCC in, and commitment to, the business that is financed : reputation of the VCC, asymmetry of information and agency problems, confidence, uncertainty, business risk, board of directors, etc.
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