The dynamics of venture capital contracts

Carsten Bienz and Julia Hirsch

No 2006/11, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We analyze the degree of contract completeness with respect to staging of venture capital investments using a hand-collected German data set of contract data from 464 rounds into 290 entrepreneurial firms. We distinguish three forms of staging (pure milestone financing, pure round financing and mixes). Thereby, contract completeness reduces when going from pure milestone financing via mixes to pure round financing. We show that the decision for a specific form of staging is determined by the expected distribution of bargaining power between the contracting parties when new funding becomes necessary and the predictability of the development process. To be more precise, parties choose the more complete contracts the lower the entrepreneur's expected bargaining power - the maximum level depending on the predictability of the development process.

Keywords: Venture Capital; Corporate Governance; Moral Hazard; Renegotiation; Contract Theory; Empirical Contract Theory; Contract Econometrics (search for similar items in EconPapers)
JEL-codes: D80 D86 G24 G32 G34 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Dynamics of Venture Capital Contracts (2011)
Working Paper: The dynamics of venture capital contracts (2005)
Working Paper: The Dynamics of Venture Capital Contracts (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200611

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