Previous research in venture capital finance has documented the relation between the duration of staged investment rounds and the degree to which monitoring is facilitated and informational asymmetry is mitigated between venture capitalists and entrepreneurial firms (Gompers, 1995). Gompers found evidence that investment rounds are shorter, and therefore monitoring is more frequent, when the entrepreneurial firm's assets are intangible, R&D is more intensive, and market-to-book ratios are higher. Moreover, the duration of investment rounds also depended on the stage of firm development, which is consistent with the idea that moral hazard and adverse selection costs are more pronounced at different stages of development (Sahlman, 1990; Macintosh, 1994; Gompers and Lerner, 1999a; Cumming, 1999a). Gompers' (1995) evidence from the duration of staged investment rounds has both supported and given rise to the majority of venture capital research indicating that the structure of venture capital investments is designed to mitigate agency costs between the venture capitalist(s) and the entrepreneurial firm (e.g., Gompers and Lerner, 1994, 1999a; Sahlman, 1990; Trester, 1998, Kaplan and Stromberg, 2000).
A second type of venture capital research has considered venture capitalists' role in mitigating agency costs between entrepreneurial firms and their new owner(s) (Gompers and Lerner, 1999a,b; Megginson and Weiss, 1990; Barry et al., 1990). This second area of venture capital research has received a comparative dearth of attention in the literature. In contrast to analyzing the duration of staged investment rounds and agency costs between venture capitalists and entrepreneurial firms (Gompers, 1995), this paper considers the role of total venture capital investment duration in mitigating agency costs between entrepreneurial firms and their new owner(s). In addition, in the spirit of Black and Gilson (1998), a comparison of evidence across Canada and the United States is provided to highlight the impact of legal and institutional features on the relation between private and public equity markets.