Competition and Specialization in the VC Market: A Non-monotonic Relationship

Christos Cabolis, Mian Dai () and Konstantinos Serfes ()
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Mian Dai: Drexel University
Konstantinos Serfes: Drexel University

Review of Industrial Organization, 2023, vol. 62, issue 3, No 2, 269 pages

Abstract: Abstract We investigate the relationship between competition and stage specialization in the venture capital (VC) markets. A typical successful entrepreneurial company goes through multiple stages of VC investments; but an average VC firm specializes and participates only in a subset of these stages. We hypothesize that a VC firm’s decision to stage-specialize (or not) poses a trade-off between business expansion and competition mitigation. Both effects are influenced by the intensity of competition. Consistent with a prediction of the theoretical model, we find robust empirical evidence for a non-monotonic relationship—an inverted-U shape—between competition and stage specialization in the U.S VC markets between 1980 and 2012. This result is novel and can have interesting managerial and policy implications.

Keywords: Venture capital market; Stage specialization; VC market competition (search for similar items in EconPapers)
JEL-codes: L13 L25 L26 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11151-023-09898-x

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