How Do Financial Contracts Evolve for New Ventures

45 Pages Posted: 17 Jan 2020 Last revised: 2 Mar 2022

See all articles by Tim Jenkinson

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Christian Rauch

Umm Al Quwain University

Danying Fu

Said Business School

Date Written: March 1, 2022


While previous research has characterized the key features of contracts between entrepreneurs and venture capitalists, little is known about the contracts’ evolution over time and across funding rounds. We overcome significant data challenges to compile a novel panel dataset of U.S. early-stage ventures that includes the main financial and control rights offered to investors at each (equity) funding round. We find that there is a ‘default contract’ with a distinct combination of rights that the majority of companies gravitate to. This default contract is typically implemented in the initial Series A funding round and rarely deviated from in later rounds. Whenever deviations do occur, terms are usually revised in favour of investors, and not entrepreneurs. Due to this stickiness of the default contract, for successful startups we argue that post-money valuations in later rounds can be a reasonable proxy for the economic value of the firm.

Keywords: Start-ups, financial contract terms, preferred stocks, valuation

JEL Classification: G23, G24, G32

Suggested Citation

Jenkinson, Tim and Rauch, Christian and Fu, Danying, How Do Financial Contracts Evolve for New Ventures (March 1, 2022). Available at SSRN: or

Tim Jenkinson

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels


Christian Rauch

Umm Al Quwain University ( email )

Umm Al Quwain
United Arab Emirates

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