Conclusion

Abstract

Venture capital relationships between venture capital companies and their portfolio companies are governed by contracts defining the financing terms as well as the contracting parties’ rights and duties throughout the investment period. The contracts’ coordinating function and their incentive-compatibility are particularly relevant in the venture capital setting where both parties are actively involved in the management of the portfolio company. Contracts and the design of their formal components, financial instruments and contractual covenants, therefore play a central role in making the investment a success.