Staged Venture Capital Contracting with Ratchets and Liquidation Rights: An Analysis of Financing Constraints
نویسنده
چکیده
While the theoretical literature strongly argues in favor of ratchets (anti-dilution protections) and liquidation rights, recent empirical studies documented limits in their use. This paper studies firms’ financing constraints in a model of staged venture capital financing where new-money raised and post-money values evolve randomly over time. Our analysis reveals that ventures fail if new money raised is “too small” or “too large”; in the latter case this is despite positive pre-money value. We analyze the conditions under which a venture capitalist will accept modifications of her contract provisions and document quantitatively the relevance of our results.
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