The Law of Contingent Control in Venture Capital

Publication Title

Columbia Business Law Review

Document Type


Publication Date



Contingent control (CC) is a key enabler of startup growth and venture capital. To preserve adequate incentives and mitigate risks, venture finance deals distribute startups' governance rights among investors and founders based on performance measures at different points in time. For example, granting greater decision-making powers to outperforming founders or depriving them of such prerogatives when they underperform. Crucially, these rights are distributed ex ante, through carefully designed contracts and securities, avoiding the costs and potential failure of future negotiations. This paper shows how corporate law determines the structure of CC: higher costs of structuring CC through bespoke securities, such as restricted shares or convertible preferred stock, incentivize the use of shareholders' agreements and shadow governance structures in VC-backed companies. These findings demonstrate that cross-country differences in security design and capital structures are not only explained by the characteristics of transacting parties and deals or by tax regulation, but also by the regulation of non-listed companies, which has been evolving in the blind spot of legal and financial scholarship. The paper argues that corporate laws in entrepreneurial economies should be recalibrated to facilitate *676 security design and discourage the disproportionate use of shareholders' agreements.

Recommended Citation

Alvaro Pereira, The Law of Contingent Control in Venture Capital, 2023 Colum. Bus. L. Rev. 675 (2023).



First Page


This document is currently not available here.