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inancial contracting

Why is the issue of financial contracting important in venture capital or entrepreneurship financing?

Why do we care about this issue in the present context?

The articles in the Module cite the term 'Optimistic Entrepreneurs'. What is the context and why are these issues relevant here?

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Why is the issue of financial contracting important in venture capital or entrepreneurship financing?
The issue of financial contracting is important in venture capital or entrepreneurship financing because the design of the contract may actually prevent the use of the venture capitalists funds for less productive use. If the venture capitalist provides funds upfront to the entrepreneur there is possibility that the funds may be used for purposes that may not be productive or achieve the goals of the venture capitalist.
There are numerous clauses that are included in the financial contract to ensure that the funds are used for the purpose for which they were provided. Usually, the venture capitalist requires that a management position be given to him. This enables the ...

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This answer provides you an excellent discussion on inancial contracting

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