chapter  11
14 Pages

RISK MANAGEMENT

Withwith Nicholas G.Terry and Julia A.Smith

This chapter provides an empirical analysis of the forms of risk management arrangements which are adopted in the relationship between the venture capital investor (VCI) and his investee (MSF). As elsewhere in this book, the underlying theoretical framework is that of principal-agent analysis.1 In using this framework, the investee is viewed as a risk-averse, but relatively wellinformed, agent who is entering into a risk-sharing contract with a risk-neutral, but relatively poorly informed, principal, the venture capital investor. The asymmetry of information between investor and investee, and their different attitudes to risk, provide the basis for mutually beneficial contracting.