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Ethnic matching in the U.S. venture capital market

Ola Bengtsson and David H. Hsu

Journal of Business Venturing, 2015, vol. 30, issue 2, 338-354

Abstract: We document the role of entrepreneurial founder and venture capital (VC) partner co-ethnicity in shaping investment relationships. Co-ethnicity increases the likelihood that a VC firm invests in a company. Conditional on investment, co-ethnicity strengthens the degree of involvement by raising the likelihood of VC board of director involvement and increasing the size and scope of investment. These results are consistent with trust and social-network based mechanisms. Shared ethnicity in our sample is associated with worse investment outcomes as measured by investment liquidity, however, which our results suggest might stem from looser screening and/or corporate governance.

Keywords: Venture capital; Ethnic matching (search for similar items in EconPapers)
JEL-codes: G24 L26 M13 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Ethnic Matching in the U.S. Venture Capital Market (2013) Downloads
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DOI: 10.1016/j.jbusvent.2014.09.001

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