Venture Capital and Private Equity Contracting

Chapter 19. The Divestment Process

19.1. Introduction and Learning Objectives

Part IV consists of Chapters 19 to 22, and it considers the divestment of venture capital and private equity investments. The term divestment in this case refers to the sale of venture capital fund investments, otherwise known as “exits.” This chapter provides an overview of the issues to consider during the divestment or exit process.

Exits are central to the entire venture capital and private equity investing process. Investee entrepreneurial firms typically lack cash flows to pay interest on debt and dividends on equity. Venture capital funds therefore really only profit from capital gains upon exit from investee entrepreneurial firms approximately two to seven ...