Delaware Courts Pose Problems For Venture Capitalists With No Clear Solutions

Venture capital investors have many reasons to exit underperforming investments. For a typical venture capital fund, holding an investment in a distressed company will be administratively time consuming and divert resources from other opportunities with a greater potential to achieve a meaningful return to the funds limited partners. In these circumstances, venture capital investors may look to exit the investment through a sale of the company, even where the sale proceeds cover only a portion of the venture fund's original investment. With a right to receive the sale proceeds prior to other stockholders under their liquidation preference, venture capital investors may conclude that a sale of the company is more feasible than a put right, which may be subject to statutory limitations on the company's ability to redeem its shares. Further, as the board of directors of venture-backed companies often include members elected by the venture capital holders of the company's