additional market share) is achieved; at this point venture capitalist gathers information and always bears on mind the option to abandon the company if something went wrong (Gompers, 1995; cited in Bottazzi and Rin, 2002). These considerations are the most cited reason in the literature, why the optimal contract between venture capitalist and entrepreneur should not be debt (Bergemann and Hege, 1998; cited in Bottazzi and Rin, 2002). Instead of debt, convertible securities should be positioned in the basics of this relation, in order to evoke efficient behaviour from the entrepreneur (Repulo and Suarez, 1998). Furthermore, “a convertible … contract assigns the venture capitalist the right to accrue a pre-specified equity fraction when he decides to convert debt into equity after both parties invested” (Lulfesmann, 2000, p.3). And the latter usually occurs when renegotiating happens and when new great stake of money is infused in the firm.
Conflict of interests often results in another form too. Namely, the treatment of the firm’s founder (entrepreneur) is also the most controversial issue in venture capital (Hellmann and Puri, 2002a). Even though there are many possibilities ranging from those where entrepreneurs claim that venture capitalists are “notorious for removing founders from the position of CEO and bringing in an outsider” (Hellmann and Puri, 2002a, p.21), to those where venture capitalist counts the change as contribution to the firm’s professionalization, literature often points out that CEO replacement takes place after experienced enterprise’s crisis and when strengthened monitoring is found essential (Lerner, 1995). Hellmann and Puri (2002b) examined a sample of 170 high-tech firms in Silicon Valley and found that outside top manager usually replaces the founder if the firm is venture capital financed. Furthermore, they found that these firms can even faster accommodate to such changes in leadership, because, primarily, the latter further professionalize the firm.
The above findings are supporting what Barry (1994) acknowledges in his article, that venture capitalists actively identify and recruit members of the management team in the venture backed company. In other words, they usually reshape management team. Moreover, investors tend to hold a board or managerial seat in the firm in which they have invested, in order to access closer oversight and to reduce agency problems (i.e. possess overall control if difficulties occur) (Lerner, 1995). At the end, even though many control devices, emphasized above, are used by the venture capitalists to enhance firm’s performance and minimize the influence of potentially risk causes, Kaplan and Strömberg (2001b) found that venture capitalists “do not intend to become too involved in the company” (p.429).
All in all, albeit venture capital has its “bad” side too, it comes up that it is not too bad: it is only a tool for control and, therefore, for better performing. But, having the bad side in account, however, the venture capital’s role in financing small businesses is not diminished. Rather than that, potential conflicts between investor and entrepreneur could be avoided with confident and trustworthy behaviour, where the role of the entrepreneur and that of the venture capitalist are going in the same direction, in order to extract the maximum benefits for the firm and for themselves, of course.
人事工资管理系统的需求分析 5 Conclusion
Several conclusions could be extracted from the arguments supplied above. Firstly,
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