Venture capital and disclosure controls

Venture capital (VC) offers a vital source of equity-based financing and guidance for early stage firms with high risk and high-growth potential, and therefore plays an important role in the global economy and is considered a key driver of innovation, economic growth, and social development. Due to their significant control rights, incentives to create value, and ongoing involvement post-exit via board positions, VCs can, and do, have significant effects on investee firms beyond the provision of capital. Consequently, this chapter reviews and synthesizes the academic literature on the effects of VC-backing on investee firm governance, with a particular focus on internal controls and procedures surrounding corporate information disclosure: the procedures that ensure the reliability, relevancy, and conformity of financial reports and financial information, and thus the quality of the overall financial reporting and information environment.