Competition in the Venture Capital Market and the Success of Startup Companies: Theory and Evidence

Suting Hong (), Konstantinos Serfes () and Veikko Thiele
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Suting Hong: Shanghai Tech University, Postal: School of Entrepreneurship and Management , Shanghai Tech University

No 2018-2, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: We examine the effect of a competitive supply of venture capital (VC) on the exits (IPO or M\&A) 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 (HHI decreases by 50 percent from its mean of 0.08), the absolute likelihood of success increases by 2.8 percent for startups backed by less experienced VC firms, but it decreases by 3.6 percent for startups backed by the most experienced VC firms

Keywords: entrepreneurship; venture capital; matching; double-sided moral hazard; exit; IPO and (search for similar items in EconPapers)
JEL-codes: C78 D86 G24 L26 M13 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2018-02-01, Revised 2020-02-16
New Economics Papers: this item is included in nep-cfn, nep-com, nep-ent, nep-ind, nep-ino, nep-pay and nep-sbm
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Competition in the venture capital market and the success of startup companies: Theory and evidence (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:drxlwp:2018_002

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