The Role of Venture Capital Firms’ Experience, Ownership Structure,and of Direct Measures of Incentive Problems for Venture Capital Contracting in Germany

Using a hand-collected sample of contracts and investment proposals from German venturecapital (VC) financing relationships, we find that experienced and or private law/independentVC firms rely to a lesser degree on debt financing and more on certain covenants in VC con-tracting even when we control for direct risk indicators as introduced by Kaplan and Ström-berg (2004). However, risk indicators determine VC contracting even when differences in VCtypes are taken into account. Differences in risk perception across different VC types are notas pronounced as differences in contracting. This may imply that different VC types are pri-marily distinguished from each other by their respective capability of avoiding negative in-centive effects of too tight contracting arrangements and only secondarily by their subjectiveevaluation of the relevance of certain incentive problems.