Empirical Evidence on Contractual Architecture

This chapter offers new insights into the real-world practices of contract negotiations and design between venture capital companies and their portfolio companies in the German venture capital market. Similar to the theoretical model in Chapter 4, its focus lies on the contractually defined allocation of cash flow rights to the contracting parties. It therefore adopts an

augmented contracting

approach in order to consider not only the cash flows resulting from financial instruments but also those determined by cash flow-related covenants. It additionally analyzes determinants of contract design, which relate to characteristics of the venture capital company. The separate allocation of control rights is also reported, despite the fact that control rights are not at the center of the analysis.