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Ibolya Schindele

Three Essays on Venture Capital Contracting

The thesis provides an analysis of venture capital financing and contains three essays on the topic: two theoretical and one empirical work.
The first theory paper considers the allocation of cash flow and control rights in venture capital contracts when financiers perform two types of value adding activities: monitoring and advice. The primary result is that entrepreneurs with large capital constraints issue debt-like securities and give control to the investor. Entrepreneurs with more self-financing issue more convex claims such as equity and retain control.

The empirical work is related to the above theory paper: it aims at examining venture financiers' incentives (embedded in the financial contracts) to carry out monitoring and advising activities in entrepreneurial projects. The paper builds on a hand collected data-set on financial contracts of a number of venture funds located in Europe.
The second theoretical model in the thesis provides an argument for syndication in venture capital contracts. The disclosure of interim knowledge and the provision of entrepreneurial incentives are central problems in venture financing. We argue that syndication may serve as a mechanism that prevents the financier to use interim knowledge in outside applications and may thereby increase entrepreneurial incentives.