Risk management in venture capital investor-investee relations

Gavin Reid, N.G. Terry, Julia Smith

Research output: Contribution to journalArticle

1 Citation (Scopus)


This paper provides an empirical analysis of risk handling arrangements adopted in the relationship between the venture capital investor and his investee. The theoretical framework adopted is principal-agent analysis, which views the investee as a risk averse agent entering into a risk sharing contract with the investor, a risk neutral Fully diversified) principal. The sample analysed is made up of twenty venture capital investors in the UK over the period 1992-93, and (where available) their corresponding investee(s). These investors accounted for about three-quarters of venture capital activity in the UK over this period. The paper reports on evidence gathered by semi-structured interviews with investors and investees, on expected returns, portfolio balance, screening and risk sharing.
Original languageEnglish
Pages (from-to)27-47
Number of pages21
JournalEuropean Journal of Finance
Issue number1
Publication statusPublished - 1997


  • venture capital
  • risk management
  • risk sharing

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