G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings AgenciesReturn

Although venture capital is considered crucial for promoting economic development and innovation, not much has been done regarding the use of complex financing contracts in venture capital backed investments. In this study we investigate the use of convertible securities and control rights covenants for a sample of 15 Portuguese venture capital firms. We use a relatively new methodology in business and management sciences - fuzzy set Qualitative Comparative Analysis - that considers both quantitative and qualitative factors for obtaining a solution that best fits the empirical data. Our results show that the use of convertible securities is affected by the anticipated severity of double-sided moral hazard problems. On the other hand, only a weak support is provided to the agency predictions regarding the use of control right covenants. Interestingly, the results reveal that convertible securities, unlike control rights covenants, are the most apt instruments to reduce costly double-sided incentive problems of a venture capital relationship.

Crowd investing has recently become an interesting possibility for young entrepreneurs to finance the start-up of new firms. This paper analyses the impact of education and gender of young entrepreneurs who finance their start-ups using a crowd investing platform. We analyse the crowd investing projects financed through the Companisto and Seedmatch platforms, which are the main crowd investing platforms in Germany. The study confirms that the majority of founders of crowd investing start-ups completed a university education. However, we find a surprisingly low-rate of female founders in crowd investing, although the gender structure do not influence the amount of crowd investing. Thus, the crowd investing does not facilitate the access to finance for new groups of entrepreneurs, but it rather facilitates the financing conditions for founders, who could also obtain a credit from the bank.