We base a contracting theory for a start-up ﬁrm on an agency model with observable but nonveriﬁable eﬀort, and renegotiable contracts. Two essential restrictions on simple contracts are imposed: the entrepreneur must be given limited liability, and the investor’s earnings must not decrease in the realized proﬁt of the ﬁrm. All message game contracts with pure strategy equilibria (and no third parties) are considered. Within this class of contracts/equilibria, and regardless of who has the renegotiating bargaining power, debt and convertible debt maximize the entrepreneur’s incentives to exert eﬀort. These contracts are optimal if the entrepreneur has the bargaining power in renegotiation. If the investor has the bargaining power, the same is true unless debt induces excessive eﬀort. In the latter case, a non-debt simple contract achieves eﬃciency — the non-contractibility of eﬀort does not lower welfare. Thus, when the non-contractibility of eﬀort matters, our results mirror typical capital structure dynamics: an early use of debt claims, followed by a switch to equity-like claims.