TY - JOUR
T1 - Competition in the venture capital market and the success of startup companies
T2 - Theory and evidence
AU - Hong, Suting
AU - Serfes, Konstantinos
AU - Thiele, Veikko
N1 - Publisher Copyright:
© 2020 Wiley Periodicals LLC
PY - 2020/10/1
Y1 - 2020/10/1
N2 - We examine the effect of a competitive supply of venture capital (VC) on the exits (initial public offering or mergers and acquisitions) of startups. We develop a matching model with double-sided moral hazard, and identify a novel differential effect of VC competition on the success of startups. Using VC data, we find evidence for this differential effect. For example, when the VC market becomes more competitive (Herfindahl–Hirschman Index decreases by 50% from its mean of 0.08), the absolute likelihood of success increases by 2.8% for startups backed by less experienced VC firms, but it decreases by 3.6% for startups backed by the most experienced VC firms.
AB - We examine the effect of a competitive supply of venture capital (VC) on the exits (initial public offering or mergers and acquisitions) of startups. We develop a matching model with double-sided moral hazard, and identify a novel differential effect of VC competition on the success of startups. Using VC data, we find evidence for this differential effect. For example, when the VC market becomes more competitive (Herfindahl–Hirschman Index decreases by 50% from its mean of 0.08), the absolute likelihood of success increases by 2.8% for startups backed by less experienced VC firms, but it decreases by 3.6% for startups backed by the most experienced VC firms.
UR - https://www.scopus.com/pages/publications/85088807588
U2 - 10.1111/jems.12394
DO - 10.1111/jems.12394
M3 - Article
AN - SCOPUS:85088807588
SN - 1058-6407
VL - 29
SP - 741
EP - 791
JO - Journal of Economics and Management Strategy
JF - Journal of Economics and Management Strategy
IS - 4
ER -