Deal Structuring in Venture Capital Financing

Abstract

The aim of the article is to study the frequency and flexibility of the use of contractual conditions by investors in financing venture projects. A comprehensive research on making investment decisions in financing venture projects was conducted, and a survey of 31 investors in venture projects, including the issues of deal structuring in venture capital financing, was carried out. The respondents of the survey indicated the frequency of using contractual conditions in the venture capital financing and flexibility in their application. According to the results of the survey, the least flexible contractual conditions for investors are anti-dilution protection, pro-rata rights and vesting. The conditions which are the most flexible for investors are control over the board of directors, investment valuation. It can be noticed that, according to the research, domestic investors are less inclined to use certain contractual conditions: redemption rights or cumulative dividends but more often use pro-rata rights, participation rights and liquidation preference.

Keywords

• venture financing
• deal structuring
• making investment decisions
• risk management