A common assumption is that entrepreneurs retain more control of their venture when opting for crowdinvesting rather than venture capital. In this article, the authors investigate the relevance of cash-flow, control, and exit rights awarded to crowd investors in Germany, where more flexible contracts are offered than in many other jurisdictions. In Germany, many of the rights used in venture capital investment contracts are also prevalent in crowdinvesting contracts. The authors find that crowd investors are asked to pay higher prices if they receive more cash-flow and exit rights, consistent with the view that these rights are valuable to the crowd. However, they find no evidence that these rights affect campaign outcome, the likelihood of securing follow-on funding, or the insolvency likelihood of the venture. The authors interpret this as evidence that the redemption rights stipulated in the contract make other types of control rights less relevant or investors' actions are ineffective. Furthermore, crowd investors neither trigger insolvency proceedings nor mention the enforcement of their contractual rights in investor communication blogs or popular media.

The full article can be downloaded here.