Iranian Journal of Finance

An Analysis of Venture Capital Contracts in Iran

Document Type : Original Article

Authors

Mehdi Sadaghiani 1
Mehdi Mohammadi 2
Ali Ebrahimnejad 3

1 University of Tehran

2 Technology and Innovation, Faculty of Management, University of Tehran

3 Department of Economics, Graduate School of Management and Economics, Sharif University

10.61186/ijf.2024.429591.1448
Abstract
This study aims to explore the dynamics of financial contracting in Iranian startups and high-tech companies, with a particular focus on the challenges posed by information asymmetry between investors and entrepreneurs. We collected and analyzed data from 123 Iranian Shareholder Agreements (ShAs). We employed a range of descriptive statistics to provide a comprehensive summary of the data. Also, to explore the relationships between our variables, we utilized Ordinary Least Squares (OLS) regression. The terms and conditions of these contracts were examined to understand the diversity and influence of these terms and how they are applied in the real world in the context of Iran. We also investigated Iranian venture capitalists' behavior in obtaining cash flow rights and control rights, and a complete description is presented through various factors, including components of cash flow rights and control rights. Our analysis revealed a limited diversity in the terms and conditions of the contracts, suggesting a potential emulation of U.S. ShAs. We found that Iranian venture capitalists tend to secure maximum cash flow and control rights, exceeding their U.S. counterparts. Preferred stocks emerged as the primary choice for investing in startup companies. However, a detailed examination of the relationship between cash flow rights and control rights indicated a lack of a unified and coherent approach in contract design, reflecting a highly conservative stance among investors. This study contributes to understanding financial contracting dynamics in emerging markets like Iran. It highlights the gap between theoretical frameworks and real-world practices, shedding light on how these factors shape the relationships between investors and entrepreneurs.

Keywords

Control Rights
Cash Flow Rights
Shareholder Agreements
Agency Problem
Information Asymmetry
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Iranian Journal of Finance
Volume 8, Issue 2
2024
Pages 73-104

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