The Dynamics of Venture Capital Contracts

Carsten Bienz and Julia Hirsch

Review of Finance, 2011, vol. 16, issue 1, 157-195

Abstract: Using a detailed German data set on venture capital contracts, the authors document that contracts between venture capitalists (VC) and their portfolio firms specify more complete conditions for future financing for firms that do have no suitable outside financing option and therefore lower ex post bargaining power. The authors' result is consistent with theories of holdup, where complete contracts protect the entrepreneur from expropriation by the financier. Moreover, there is evidence of learning by VCs. Other possible explanations for observed contracts, such as multitasking or coordination costs, instead have little explanation power. Copyright 2011, Oxford University Press.

Date: 2011
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Working Paper: The dynamics of venture capital contracts (2005)
Working Paper: The Dynamics of Venture Capital Contracts (2005)
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