The Impact of Competition on Startup and VC Behavior
Publication Date
1-10-2023
Abstract
This paper examines the impact of competition on the behavior of both startups and VC firms and identifies a channel through which it occurs. Following an exogenous shock that increases competition, reputable VCs reduce the number and size of their investments, create smaller syndicates, and shrink the time between financing rounds. Also, high-quality startups become less likely to partner with reputable VCs, worsening their investment pool, depressing returns and hurting their incentive to invest and/or undertake costly screening. Notably, VCs with the highest reputation are crowded out the most.
Document Type
Article
Keywords
Venture capital, reputation, competition, investor tax credit
Disciplines
Finance
DOI
10.2139/ssrn.3761472
Source
SMU Cox: Finance (Topic)
Language
English
