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Venture capital-backed firms, unavoidable value-destroying trade sales, and fair value protections
- 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
Author: | Casimiro Antonio NigroGND, Jörg R. StahlORCiD |
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URN: | urn:nbn:de:hebis:30:3-616417 |
URL: | https://ssrn.com/abstract=3662441 |
Parent Title (English): | LawFin working paper ; No. 1 |
Series (Serial Number): | LawFin Working Paper (1) |
Publisher: | Center for Advanced Studies on the Foundations of Law and Finance, House of Finance, Goethe University |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2020 |
Year of first Publication: | 2020 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2021/09/08 |
Tag: | Appraisal rights; Corporate governance; Corporate law; Drag-along rights; Entrepreneurship; Fair value; Innovation; Law and economics; Law and finance; Private equity; Private ordering; Start-ups; Trade sales; Venture capital |
Issue: | 28 August 2020 |
Page Number: | 58 |
Last Page: | 56 |
Institutes: | Rechtswissenschaft / Rechtswissenschaft |
Wirtschaftswissenschaften / Wirtschaftswissenschaften | |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
Wissenschaftliche Zentren und koordinierte Programme / DFG-Forschergruppen / Foundation of Law and Finance | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
3 Sozialwissenschaften / 34 Recht / 340 Recht | |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |