Venture capital investment strategies under financing constraints: Evidence from the 2008 financial crisis |
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| Authors: | Annamaria Conti Nishant Dass Francesco Di Lorenzo Stuart JH Graham |
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| Institution: | 1. University of Lausanne, Faculty of Business and Economics (HEC), Internef Building, CH-1015 Lausanne, Switzerland;2. Georgia Institute of Technology, Scheller College of Business, 800 W. Peachtree St. NW, Atlanta, GA, 30308 USA;3. Copenhagen Business School, Department of Strategy and Innovation, Solbjerg Pl. 3, 2000 Frederiksberg, Denmark |
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| Abstract: | This paper employs the 2008 financial crisis as an empirical setting to examine how investment strategies of venture capitalists (VCs) vary in the presence of a liquidity supply shock, and what the performance implications of these strategies are for their portfolio startups. We show that while, on aggregate, funded startups receive no less financing during the financial crisis than in non-crisis times, VCs allocate relatively more resources to startups operating in the VCs’ core sectors. We show that this skew allocation follows from VCs choosing to double down on their core-sector investing, rather than by a changed mix of investors or startups during the financial crisis. These effects are strongest for early-stage startups, for which information problems are most severe. Furthermore, these results are driven by the investment strategies of more-experienced VCs. Building on these findings, we find superior ex post performance among crisis-funded portfolio startups operating in more-experienced VCs’ core sectors. |
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| Keywords: | G11 G24 D22 M13 O3 Financial crises Entrepreneurial finance Venture capital Portfolio choice Startup performance Innovation |
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