Contractual relations between European VC-funds and investors: the impact of reputation and bargaining power on contractual design

The paper explores factors that influence the design of financing contracts between venture capital investors and European venture capital funds. 122 Private Placement Memoranda and 46 Partnership Agreements are investigated in respect to the use of covenant restrictions and compensation schemes. The analysis focuses on the impact of two key factors: the reputation of VC-funds and changes in the overall demand for venture capital services. We find that established funds are more severely restricted by contractual covenants. This contradicts the conventional wisdom which assumes that established market participants care more about their reputation, have less incentive to behave opportunistically and therefore need less covenant restrictions. We also find that managers of established funds are more often obliged to invest own capital alongside with investors money. We interpret this as evidence that established funds have actually less reason to care about their reputation as compared to young funds. One reason for this surprising result could be that managers of established VC funds are older and closer to retirement and therefore put less weight on the effects of their actions on future business opportunities. We also explore the effects of venture capital supply on contract design. Gompers and Lerner (1996) show that VC-funds in the US are able to reduce the number of restrictive covenants in years with high supply of venture capital and interpret this as a result of increased bargaining power by VC-funds. We do not find similar evidence for Europe. Instead, we find that VC-funds receive less base compensation and higher performance related compensation in years with strong capital inflows into the VC industry. This may be interpreted as a signal of overconfidence: Strong investor demand seems to coincide with overoptimistic expectations by fund managers which make them willing to accept higher powered incentive schemes

Contractual Relations between European VC–Funds and Investors: The Impact of Reputation and Bargaining Power on Contractual Design

The paper explores factors that influence the design of financing contracts between venture capital investors and European venture capital funds. 122 Private Placement Memoranda and 46 Partnership Agreements are investigated in respect to the use of covenant restrictions and compensation schemes. The analysis focuses on the impact of two key factors: the reputation of VC-funds and changes in the overall demand for venture capital services. We find that established funds are more severely restricted by contractual covenants. This contradicts the conventional wisdom which assumes that established market participants care more about their reputation, have less incentive to behave opportunistically and therefore need less covenant restrictions. We also find that managers of established funds are more often obliged to invest own capital alongside with investors money. We interpret this as evidence that established funds have actually less reason to care about their reputation as compared to young funds. One reason for this surprising result could be that managers of established VC funds are older and closer to retirement and therefore put less weight on the effects of their actions on future business opportunities. We also explore the effects of venture capital supply on contract design. Gompers and Lerner (1996) show that VC-funds in the US are able to reduce the number of restrictive covenants in years with high supply of venture capital and interpret this as a result of increased bargaining power by VC-funds. We do not find similar evidence for Europe. Instead, we find that VC-funds receive less base compensation and higher performance related compensation in years with strong capital inflows into the VC industry. This may be interpreted as a signal of overconfidence: Strong investor demand seems to coincide with overoptimistic expectations by fund managers which make them willing to accept higher powered incentive schemes.Venture Capital, Contracting, Limited Partnership, Funds, Principal Agent, Compensation, Covenants, Reputation, Bargaining Power

Let's Make Block Coordinate Descent Go Fast: Faster Greedy Rules, Message-Passing, Active-Set Complexity, and Superlinear Convergence

Block coordinate descent (BCD) methods are widely-used for large-scale numerical optimization because of their cheap iteration costs, low memory requirements, amenability to parallelization, and ability to exploit problem structure. Three main algorithmic choices influence the performance of BCD methods: the block partitioning strategy, the block selection rule, and the block update rule. In this paper we explore all three of these building blocks and propose variations for each that can lead to significantly faster BCD methods. We (i) propose new greedy block-selection strategies that guarantee more progress per iteration than the Gauss-Southwell rule; (ii) explore practical issues like how to implement the new rules when using "variable" blocks; (iii) explore the use of message-passing to compute matrix or Newton updates efficiently on huge blocks for problems with a sparse dependency between variables; and (iv) consider optimal active manifold identification, which leads to bounds on the "active set complexity" of BCD methods and leads to superlinear convergence for certain problems with sparse solutions (and in some cases finite termination at an optimal solution). We support all of our findings with numerical results for the classic machine learning problems of least squares, logistic regression, multi-class logistic regression, label propagation, and L1-regularization

Towards models of gravitational waveforms from generic binaries II: Modelling precession effects with a single effective precession parameter

Gravitational waves (GWs) emitted by generic black-hole binaries show a rich structure that directly reflects the complex dynamics introduced by the precession of the orbital plane, which poses a real challenge to the development of generic waveform models. Recent progress in modelling these signals relies on an approximate decoupling between the non-precessing secular inspiral and a precession-induced rotation. However, the latter depends in general on all physical parameters of the binary which makes modelling efforts as well as understanding parameter-estimation prospects prohibitively complex. Here we show that the dominant precession effects can be captured by a reduced set of spin parameters. Specifically, we introduce a single \emph{effective precession spin} parameter, $\chi_p$, which is defined from the spin components that lie in the orbital plane at some (arbitrary) instant during the inspiral. We test the efficacy of this parameter by considering binary inspiral configurations specified by the physical parameters of a corresponding non-precessing-binary configuration (total mass, mass ratio, and spin components (anti-)parallel to the orbital angular momentum), plus the effective precession spin applied to the larger black hole. We show that for an overwhelming majority of random precessing configurations, the precession dynamics during the inspiral are well approximated by our equivalent configurations. Our results suggest that in the comparable-mass regime waveform models with only three spin parameters faithfully represent generic waveforms, which has practical implications for the prospects of GW searches, parameter estimation and the numerical exploration of the precessing-binary parameter space.Comment: 19 pages, 15 figures. Modified discussio

Dissolved methane pluming mapping using Membrane Inlet Mass-Spectrometry (MIMS) at a blowout site in the North Sea

A blow out site in the North Sea (well 22/4-b, UK EEZ) in a water depth of 83 m, served as a test area to demonstrate MIMS as a powerful tool for the continuous measurement of dissolved methane simultaneously to the partial pressure of carbon dioxide, nitrogen and oxygen as well as other gases. A pump-CTD arrangement was used to generate a continuous water stream through a 2.5 cm thick tube to the ship laboratory and was analyzed using a membrane inlet quadrupole mass spectrometer (GAM 200, InProcessInstruments). The pump-CTD was further equipped with calibrated HydroC CH4/CO2 sensors. The MIMS measurements were conducted under fully controlled temperature conditions and were calibrated for CH4, N2, O2, and pCO2. The pump-CTD arrangement was towed along transects across the blow out and dissolved gas concentrations as well as physical water column data were synchronized and geo-referenced. The transects were repeated in three different depth layers, including a bottom layer of � 2 m above the sea floor, 60 m above the sea floor just below the thermocline and a third plane in 10 m water depth. During the tows water samples were taken for later onboard methane analysis and cross-calibration with the MIMS and HydroC data. After data selection under consideration of the tidal regime lateral and vertical plume dimensions of dissolved methane were constructed. Dissolved methane concentrations ranged between background and up to about 18�M. Below the thermocline, which represents an effective barrier for the vertical distribution of dissolved methane, methane distinctively spreads laterally. Only at locations were the gas bubble stream and concurrently advected water from below the thermocline reaches the sea surface enhanced methane emission into the atmosphere took place