Equity financing and covenants in venture capital

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Contract design is a focal point in venture capital research, particularly regarding the notable differences between German and Anglo-Saxon practices in financial instruments and covenants. Existing literature has overlooked the complementary role of covenants in allocating cash flow rights among contracting parties. This dissertation offers a comprehensive analysis of cash flow incentives within German venture capital contracts, examining how financial instruments and covenants interact. It begins with a theoretical analysis of cash flow effects from common contract designs, followed by an empirical study that reveals new insights into contracting patterns in the German market. By integrating theoretical and empirical findings, the author proposes implications for enhancing incentive-driven contract design in Germany. The dissertation significantly contributes to the international literature on venture capital contracting and provides valuable insights for venture capitalists and portfolio companies in Germany. It is poised to influence both researchers and practitioners in the field, making a notable impact on current venture capital research. Professor Ulrich Hommel, Ph.D.