Survey_SW_2003

Abstract

In this study, we analyse 122 Private Placement Memoranda (PPM) and 46 partnership agreements of European VC-funds, which were raised between 1996 and the end of 2001. The key elements of partnership agreements analysed in this article are the compensation terms, the general partners own capital contribution to the fund, and the covenants that restrict the venture capitalists’ actions. The size and quality of the analyzed dataset is unique and allows a highly representative analysis of contractual relations for the European VC-market. Given the similar growth pattern of the US VC-industry in the 1980s and the European VC-industry in the ending 1990s, results of this study seem to be comparable to two studies conducted by Gompers and Lerner in 1996 and 1999, which analyse US VC partnership agreements for the time span between 1979 and 1992. A dataset comprising of 122 private placement memoranda and 46 partnership agreements of European VC-funds is used for this study. Data was collected from the archived of one of the oldest and largest VC fund of fund firms in Europe. We restricted the analysis to independent private limited partnerships, which engage exclusively in VC investment and are located in a European country. We did not include PPM’s and PA’s which had other investment types stated in their prospectus, such as LBO’s, MBO’s, or turnarounds. If the fund was managed from different offices in Europe, we use the country of the main office as the funds’ origin. Placement memoranda and partnership agreements are confidential data and not publicly available. Therefore, a complete survey of all European funds is not possible. The sample is taken from the original deal flow which is not subject to a selection bias. We assessed the completeness and representativeness of the sample by comparing it with the market data published by the European venture capital association (EVCA).