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81 N.Y.U.Law Journal, 967-1025 (2006)

Download the Paper (276 K, PDF file) - May 8, 2006 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
Venture capitalists investing in U.S. startups typically receive preferred stock and extensive control rights. Various explanations for each of these arrangements have been offered. However, scholars have failed to notice that these arrangements, when combined, often lead to a highly unusual corporate governance structure: one where preferred shareholders, rather than common shareholders, control the board and therefore the firm itself. The purpose of this Article is threefold: (1) to highlight the unusual governance structure of these VC-backed startups; (2) to show that preferred shareholder control can give rise to potentially large agency costs; and (3) to suggest legal reforms that may help VCs and entrepreneurs reduce these agency costs and improve corporate governance in startups.

SUGGESTED CITATION:
Jesse M. Fried and Mira Ganor, "Agency Costs of Venture Capitalist Control in Startups" (May 8, 2006). Berkeley Program in Law & Economics, Working Paper Series. Paper 203.
http://repositories.cdlib.org/blewp/art203