The market for insurance-linked securities (ILS) expanded strongly during the past few years. Although exact data on issuance volumes is not available – due to the private nature of many transactions – estimates suggest that the market grew tenfold during the past decade and more than doubled during the past five years.
This paper studies how covenants are included in contracts between venture capitalists (VCs) and entrepreneurs. I show that VCs hold covenanted veto rights even though they are shareholders who have access to other powerful governance solutions. Unlike bank loans and bonds, venture capital (VC) contracts exhibit considerable variance in their contractual designs. I exploit the variation to confirm the argument that covenants are in place to overcome a conflict of interest that arises from debt-like contractual features of a venture capitalist’s preferred stock.
During the past decade, the inability of traditional stock and bond portfolios to satisfy investor needs led to an evolution of the investment management industry. Investors began to search for other sources of diversification,encouraging asset managers to think about new products and ideas.