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Same, same but different : how preferential claims skew risk and returns of venture capital investments

  • Venture capital often involves complex equity contracts, which affect the allocation of cash flows among shareholdings at an exit liquidation. To facilitate economic impact analysis, we structure exit relevant preferential rights by their economic impact in a two-dimensional framework. Based hereon, we provide a model that allows to assess ex-ante value of such shares. We apply our model to a selected sample of ventures and find an average overvaluation on a share class basis of 22.1% (median 23.9%), where overvaluation is particularly severe for common and early-on investments.

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Document Type:Working Paper
Author:Julian Kaboth, Arnd Lodowicks, Maximilian SchreiterORCiD, Bernhard SchwetzlerORCiD
Chairs and Professorships:Chair of Financial Management
Chair of Mergers & Acquisitions
Year of Completion:2020
Page Number:36
Tag:Liquidation preferences; Option-pricing; Preferential claims; Venture capital finance
Working Paper
Content Focus:Academic Audience
Licence (German):License LogoUrheberrechtlich gesch├╝tzt