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Venture capital-backed firms, unavoidable value-destroying trade sales, and fair value protections
(2020)
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
In the course of a growing start-up market and strongly increasing investment volume, investors try to predict the success of a business as precisely as possible in advance. However, when assessing the personality of the founder or founding team, they still rely far too often on their gut feeling, thereby reducing the quality of their decisions. Our study therefore aimed at investigating whether there are any relationships between the founders' personality traits and their performance and thus justifying the need for more targeted and optimized diagnostics in the field of founder personality. With a total of 141 founders, clear correlations between personality traits (conscientiousness, emotional stability) and performance could be demonstrated in the present study. In addition, it became evident that perceived stress is also related to the founders’ personality (emotional stability negative, conscientiousness positive) and in turn has a negative effect on performance. Our findings contribute to raising awareness of the importance of personality as a predictor of founders' performance, improving decision-making, and, in the long run, replacing gut feeling as an inappropriate assessment criterion of investors.