Educating Entrepreneurs on VC contracts

Our intervention aims to improve entrepreneurs’ understanding of venture-capital and seed-financing contracts by providing a structured educational curriculum and optional professional legal support. The program consists of two integrated components.

First, participants assigned to the treatment group receive a simplified, practice-oriented educational module on the structure and economic logic of VC contracts. The curriculum is adapted from open-courseware at top U.S. universities in entrepreneurship and finance and covers key contractual terms—valuation, equity dilution, vesting schedules, liquidation preferences, control rights, investor protections, and typical term-sheet structures. Content is delivered through short online lessons, numerical examples, and case-based explanations. Participants also interact with an AI-based learning assistant capable of explaining contractual clauses, demonstrating dilution scenarios, and simulating negotiation exercises in real time.

Second, after completing the educational module, treated participants are offered a free follow-up legal consulting service. Through this service, entrepreneurs may submit draft or actual term sheets or financing contracts for individualized review by partnering legal institutions and volunteer startup lawyers. Legal advisors provide explanations of potential risks, highlight investor-favored clauses, and offer guidance for negotiation strategy. This component ensures that conceptual learning can be applied to real contracting decisions.

Participants in the control group receive general entrepreneurship content unrelated to contracts or financing terms. All participants are drawn from three recruitment channels—startup-blogger social media communities, university accelerators, and regional business associations—and are randomly assigned within channel and recruitment cohort.

The intervention is designed to increase contract literacy, improve negotiation competence, and influence entrepreneurs’ financing and occupational decisions.

2018-12-31

2029-01-01

The experiment tracks several primary and secondary outcomes related to entrepreneurs’ career choices, financing outcomes, and contracting behavior. All outcomes are measured at follow-up and are defined consistently across treatment and control groups.

Primary Outcomes (Full Sample):

Continuation of the startup full-time
An indicator for whether the entrepreneur is still operating the startup as a full-time venture at follow-up.

Transition to salaried employment
An indicator for whether the entrepreneur exits the startup path and enters traditional paid employment.

Initial venture or seed funding
An indicator for whether the entrepreneur secures initial external equity financing (venture capital, angel investment, or seed funding).

Secondary Outcomes (Conditional on Receiving Initial VC/Seed Funding):

Follow-on funding
An indicator for whether the venture raises at least one subsequent round of outside financing.

Valuation
A continuous measure of the firm’s post-investment valuation, based on reported funding terms and investor assessments.

Cash-out or liquidity event
An indicator for whether the founder experiences a positive liquidity event, such as secondary share sales or partial exit.

Cofounder retention
An indicator for whether the original founder remains listed as a cofounder or board member at the time of subsequent funding or exit.

Mechanism Outcomes (Behavioral and Knowledge Measures):

Identification of unfavorable contractual terms
Whether the entrepreneur correctly recognizes and raises concerns about materially unfavorable clauses during contract review.

Negotiation initiative
Whether the entrepreneur takes active steps in negotiation, such as proposing counter-terms, requesting clarifications, or initiating revisions.

Use of legal consulting services
Whether the participant uses the free legal consultation service made available to treated individuals.

This randomized controlled trial examines how improving entrepreneurs’ understanding of venture-capital and seed-financing contracts—and providing access to legal advisory services—affects their financing choices, negotiation behavior, and venture progression. The study recruits more than 6,000 early-stage entrepreneurs from three major channels: startup-focused social media communities, regional business associations, and university-affiliated accelerator programs. These channels collectively capture a broad spectrum of early-stage founders across industries, regions, and stages of development.

All eligible participants are randomly assigned, within recruitment channel and recruitment cohort, to either the treatment group or the control group, with approximately half of the full sample allocated to each. Randomization ensures balance across observable characteristics such as age, education, prior startup experience, baseline contract knowledge, and self-reported risk preferences.

Participants assigned to the treatment group are then further subdivided through a second level of randomization. The treatment group is split evenly into three distinct intervention arms:

(1) Education-Only Arm.
Participants in this arm receive an online educational module focused on the economic and legal structure of typical early-stage financing contracts. The module covers core topics including valuation and equity pricing, founder dilution and cap tables, liquidation preferences, investor control rights, anti-dilution clauses, vesting structures, governance terms, and additional contractual mechanisms that shape bargaining outcomes between entrepreneurs and investors. The curriculum is delivered through short video lessons, numerical simulations, and interactive exercises. Participants also have access to an AI-based tool that explains contractual clauses, demonstrates financial implications, and assists with real-time scenario analysis.

(2) Legal-Only Arm.
Participants in this arm are offered free access to a professional legal consulting service. Through this service, entrepreneurs may submit draft or actual term sheets and financing agreements to experienced legal professionals for individual review. Consultants provide structured guidance, highlight potentially unfavorable clauses, explain investor rights and founder obligations, and advise on negotiation strategy. The purpose is to supply high-quality legal input at the moment of real-world contracting decisions.

(3) Combined Education + Legal Arm.
Participants in this arm receive both the educational module and the legal consulting offer, allowing the study to test whether conceptual contract knowledge and professional legal support are complements or substitutes in shaping entrepreneurs’ decision-making and outcomes.

The control group does not receive any contract-related content or legal advisory services during the study period.

Outcome data are collected through follow-up surveys and verification checks, allowing measurement of key entrepreneurial choices—such as whether the founder continues operating the startup full-time, switches to salaried employment, or obtains external venture or seed financing. For entrepreneurs who do secure initial external funding, the study further tracks follow-on investment rounds, realized valuations, liquidity events, and whether the original founder remains listed as a cofounder or board member. The experiment additionally records mechanism variables, including comprehension of contractual terms, identification of unfavorable clauses, negotiation initiative, and usage of the optional legal consultation service.

The design supports estimation of overall intent-to-treat effects, treatment-arm heterogeneity, and the interaction between education and legal support. The large sample size and stratified randomization ensure that the experiment is well-powered to detect meaningful effects on both extensive-margin career decisions and intensive-margin venture performance outcomes.

Not available

Randomization is conducted at the cluster level, where each cluster is defined by the interaction of recruitment channel and cohort year. Recruitment channels include startup-focused social media groups, regional business associations, and university accelerator programs, and cohort years include 2019, 2021, 2023, and 2025, yielding a total of 12 clusters. Treatment assignment occurs at this cluster level to ensure that all entrepreneurs within the same recruitment channel and cohort year receive the same treatment status.

Clusters are first randomly assigned to either the treatment or control condition using a computer-generated algorithm, with approximately half of the clusters allocated to each. Among the clusters assigned to treatment, a second level of randomization assigns clusters, in equal proportions, into one of three intervention arms: (1) education-only, (2) legal-only, and (3) combined education plus legal support. All random assignment is performed using random-number generation procedures in Stata.

To improve covariate balance across treatment conditions, we apply a pre-specified re-randomization procedure. After a candidate cluster-level assignment, we compute balance statistics across treatment status using cluster-aggregated covariates, including average age, gender composition, education distribution, prior startup experience, baseline contract-knowledge scores, and self-reported risk preferences. If the maximum absolute t-statistic across these variables exceeds 1.25, or if the average absolute t-statistic exceeds 0.35, the assignment is rejected and a new random draw is generated. This process is repeated until the allocation meets the balance criteria.

All randomization, re-randomization, and balance-check procedures are implemented through pre-written Stata code, ensuring full transparency and reproducibility in the assignment of clusters to treatment conditions.

6000 entrepreneurs

No

12, Treatment is assigned at the cluster level. Clusters are defined by the interaction of recruitment channel and cohort year. There are three recruitment channels (startup-focused social media groups, business associations, and university accelerator programs) and four enrollment cohort years (2019, 2021, 2023, 2025), for a total of 3 × 4 = 12 clusters.

6000 entrepreneurs

3000 entrepreneurs