Financing J-Curves in Venture Capital

Thomas Hellmann (), Alexander Montag () and Joacim Tåg
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Alexander Montag: Kelley School of Business, Indiana University, and, Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden, https://www.ifn.se/en/researchers/affiliated-researchers/alexander-montag/

No 1500, Working Paper Series from Research Institute of Industrial Economics

Abstract: Startups face a trade-off between short-term profitability and long-term growth. Their cash flows are said to follow a so-called J-curve. The shape of the curve depends on investors' financing capacity: their ability to sustain prolonged periods of negative cash flow. US venture capitalists are often believed to have greater financing capacity. We examine a large Swedish dataset with detailed cash flow information. Swedish startups backed by US venture capitalists experience deeper J-curves, with larger short-term losses and higher long-term sales, relative to those backed by non-US venture capitalists. These results are consistent with US venture capitalists having greater financing capacity: they can provide more funding directly and have better access to later-stage investors.

Keywords: Venture Capital; Startup Financing; J-Curves; Follow-on Funding; Entrepreneurial Finance (search for similar items in EconPapers)
JEL-codes: G24 G32 L26 O16 O31 (search for similar items in EconPapers)
Pages: 95 pages
Date: 2024-08-27, Revised 2026-03-31
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-ino and nep-sbm
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