| Sumario: | This paper analyzes the allocation of control rights in financing private companies by private equity and venture capitalists in Estonia. Structured interviews with main providers of venture capital and private equity were conducted to collect the information about the current practice in Estonia and to highlight topical problems in this field. Due to the legal restrictions imposed on the preferred shares and convertible debt, most Estonian venture capitalists use common shares in financing high-growth firms and take similar risk position as entrepreneurs. Although, by using common shares, venture capitalists obtain voting rights, the minority ownership by itself does not provide sufficient protection of their interests. Venture capitalists increase their influence over the company through the active involvement in supervisory and management boards and detailed term-sheets which include different vetoes and additional clauses. Reprinted by permission of the publisher.
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