Proliferating research on venture capital (VC) has focused on the value-creating effects of VCs, characterizing VCs and startups as principals and agents respectively. However, an important, yet overlooked, aspect of the partnership is the value-capture consideration between the two parties. Drawing on property rights theory, we explore how value capture provisions for the VC evolve over different rounds of financing. We suggest that, as the value of the startup increases, it is economically efficient for the VC to forgo value capture rights. We further posit that VCs forfeit cumulative value capture rights, whereas they maintain protective value capture rights and that this effect is moderated by firm-specific uncertainty and environmental uncertainty. Using 6,627 financing contracts between 2,628 unique startups and 1,055 VCs, we provide supporting evidence of our theory.
