Carsten Bienz
Julia Hirsch

2006/11 - The Dynamics of Venture Capital Contracts

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.

• Venture Capital
• Corporate Governance
• Moral Hazard
• Renegotiation
• Contract Theory
• Empirical Contract Theory
• Contract Econometrics

G24, G32, D86, D80, G34

Carsten Bienz (LSE)
London School of Economics
Financial Markets Group, R 409, Houghton Street
London WC2A 2AE
UK
Tel.: +44 (0) 20 78523521
Email: c.bienz@lse.ac.uk

 

Carsten Bienz (CFS)
Center for Financial Studies
Grüneburgplatz 1 House of Finance
60323 Frankfurt
Germany

 

Julia Hirsch (Goethe University Frankfurt)
Goethe University Frankfurt
Chair for Industrial Organization, Grüneburgplatz 1
60323 Frankfurt
Germany
Email: jhirsch@wiwi.uni-frankfurt.de