Julia Hirsch

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.

Why Do Contracts Differ Between VC Types? Market Segmentation Versus Corporate Governance Varieties

The main objective of the present paper is to disentangle observed differences in the design of contracts across VC types into firm selection effects and corporate governance differences between VC types (different contracts). Based on a theoretical approach developed in the first part of the paper, we investigate in the second part these issues empirically by using a unique, hand-collected German data set consisting of all contractual details of VC investments into 290 entrepreneurial firms in the period 1990-2004. By employing various matching procedures, we show that VC types differ in both firm choice and corporate governance approach.

Public Policy and Venture Capital Financed Innovation: A Contract Design Approach

The effects of public policy programs which aim at internalizing spill-overs due to successful innovation are analyzed in a sequential double-sided moral hazard doublesided adverse selection framework. The central focus lies in analyzing their impact on contract design. We show that in our framework only ex post grants are a robust instrument for implementing the first-best situation, whereas the success of guarantee programs, ex ante grants and some types of investment grants depends strongly on the characteristics of the project: in certain cases they not only give no further incentives but even destroy contract mechanisms and so worsen the outcome.

DOS MODELOS DE TEORÍA DE JUEGOS APLICADOS A LAS ADMINISTRADORAS DE FONDOS PARA EL RETIRO (AFORES ) EN MÉXICO

In Mexico the pension system based on Institutions Administrators of Retirement Funds (AFORES) is relatively new, that is why this study shows two game theory applications in order to provide different decisions tools to the economics agents involved into individual capitalization pension market in Mexico, and help them to maximize their economic and personnal profits. The results show the applicability of Bertrand model to modeling the way in AFORES compete in prices and the Hotelling model utility to modeling how AFORES compete for a horizontal differentiation market.

Financial constraints, newly founded firms and the financial crisis

This paper aims to analyze the effects of financial constraints and the financial crisis on the financing and investment policies of newly founded firms. Thereby, the analysis adds important new insights on a crucial segment of the economy. We make use of a large and comprehensive data set of French firms founded in the years 2004-2006, i.e. well before the financial crisis. Our panel data analysis shows that the global financial crisis imposed a shock (mostly demand-driven) on the financing as well as on the investments of these firms. Moreover, we find that financially constrained firms use less external debt financing and invest smaller amounts. They also rely on less trade credit. With regard to bank financing, newly founded firms which are more financially constrained accumulate less bank debt and repay initial bank debt slower than their non-financially constraint counterparts. Finally, we find that financially constrained firms are affected to a smaller degree by the financial crisis than their less financially constrained counterparts.