This paper investigates four common features (covenants) of venture capital investment contracts from a real option perspective, using both analytical solutions and numerical analysis to draw inferences for a better understanding of contract features.

Valuing early-stage high-technology growth-oriented companies is a challenge to current valuation methodologies. Efforts are redirected towards the design of investment contracts which materially skew the distribution of payoffs in favor of the venture investors. In effect, limitations in...