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 these effects occur. Following an increase in competition due to the introduction of investor tax credits (ITC), reputable VCs reduce their investments in the affected states and redirect their investments to non-ITC states. One potential reason is that higher-quality startups become less likely to partner with reputable VCs, worsening the pool of startups available to them. While their performance suffers, higher-quality startups appear no worse off for partnering with lesser-known investors.
Document Type
Article
Keywords
JEL Classification: G24, G28, G34 Venture capital, reputation, competition, investor tax credit
Disciplines
Finance
DOI
10.2139/ssrn.3761472
Source
SMU Cox: Finance (Topic)
Language
English
