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Standardization and Innovation in Venture Capital Contracting: Evidence from Startup Company Charters

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Abstract

This study examines the standardization of venture capital contracts following the 2003 re-lease of the National Venture Capital Association’s model charter. Among nearly 5,000 Series A startup charters, model adoption rose from 2 percent in 2004 to 84 percent by 2022, driven largely by six major law firms. Delaware incorporation also increased from 63 percent to 100 percent, reflecting the model’s assumption of a Delaware corporation. Despite growing contract standardization, capital structures have become more complex: In 2004, 83 percent of charters authorized only Series A preferred stock and one class of common stock, compared with 4 percent by 2022 due to the prior issuance of seed-stage securities and, to a lesser extent,dual-class common stock. Overall, firms’ Series A financings have standardized, but their capital structures have become more complex because of the growing role of seed-stage capital, making Series A startups more mature today than in 2003

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