When do venture capital and startups team up? Matching matters

Hui Fu, Huilan Qi and Yunbi An

Pacific-Basin Finance Journal, 2024, vol. 85, issue C

Abstract: This paper investigates the timing of venture capital (VC) investment in startups from the perspective of the matching relationship between VC firms and startups. Using data on VC investments in China, we find that matching between VCs and startups with similar quality rankings promotes VC investment in early-stage startups. The promoting effect of balanced matching is particularly pronounced for private VCs and domestic VCs. In addition, exit market liquidity strengthens this positive association, as evidenced by the finding that the effect of matching is more pronounced when the IPO market is open than when it is closed. We further show that balanced matching between the two parties helps increase the risk-taking by VCs, thereby enhancing their propensity to invest in early-stage startups.

Keywords: Venture capital; Startups; Matching; Timing of VC investment (search for similar items in EconPapers)
JEL-codes: C78 G24 G30 M13 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24001124

DOI: 10.1016/j.pacfin.2024.102361

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