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Assessing the Economic Value of Venture Capital Contracts: by Jil Caroline Onimus

By Jil Caroline Onimus

Jil C. Onimus makes a contribution to the nascent study line at the financial worth a chance capital contracts which lies on the intersection a raffle capital agreement layout and genuine alternative pricing. She identifies the hampers of actual recommendations embedded in version enterprise capital contracts as released by means of the nationwide enterprise Capital organization (NVCA) and exhibits how they are often priced in interplay utilizing Least Squares Monte Carlo simulation. The pricing version is calibrated through a dataset of deal phrases in Silicon Valley in addition to facts from the NVCA. by means of utilizing the version to plain funding eventualities (multiple financing rounds with a number of investors), the writer obtains estimates of alternative values for person phrases and for complete contracts with interplay effects.

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Additional resources for Assessing the Economic Value of Venture Capital Contracts: An Option Pricing Approach

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1, the underlying asset used for the pricing model is the share value of the portfolio company, which is adjusted discontinuously upon the occurrence of Pricing Events. 3. Model Specification 39 the parties at the time of contracting and typically ranges between three and eight years, depending notably on the stage of development of the portfolio company and the remaining lifetime of the VC fund. The author defines the maximum investment period as the interval [t0 , tmax ] between the series A investment date (t0 ) and the date agreed among the parties (at t0 ) as the latest possible exit date (tmax ).

The lead investor sets the price per share of the financing round, thereby determining the valuation of the company. – Co-investor(s): the VC investor(s) that does (do) not act as lead investor(s). 4 Financial Instruments Financial instruments are standardized financial contracts traded in the financial markets. They may include contractual provisions that can be used similarly to standalone covenants. The major groups of financial instruments used by VC firms and relevant in the context of this thesis are defined on the following page.

The model documents occasionally diverge from current customs if necessary to avoid internal inconsistencies or redundancies. The initial model documents were the result of a consensus process among the members of the NVCA Model Document Working Group, which consists of leading VC lawyers and VC firms. Since the first publication, they have been regularly revised to reflect legal developments or actual experience. The model documents referred to in this thesis are listed on the following page. 30 2 General Methodology • Term Sheet (hereafter “NVCA Term Sheet”), • Certificate of Incorporation (amended and restated, hereafter “NVCA Certificate of Incorporation (standard)”) and Certificate of Incorporation with Pay-to-Play “Lite” (amended and restated, hereafter “NVCA Certificate of Incorporation (with Pay-to-Play lite)”), • Investors’ Rights Agreement (hereafter “NVCA Investors’ Rights Agreement”), • Voting Agreement (hereafter “NVCA Voting Agreement”), • Series A Preferred Stock Purchase Agreement (hereafter “NVCA Stock Purchase Agreement”), • Management Rights Letter (hereafter “NVCA Management Rights Letter”), • Right of First Refusal and Co-Sale Agreement (amended and restated, hereafter “NVCA Right of First Refusal and Co-Sale Agreement”).

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