How Smart is Smart Money? A Two-Sided Matching Model of Venture Capital

63 Pages Posted: 31 Jan 2006

See all articles by Morten Sorensen

Morten Sorensen

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2006

Abstract

I find that companies funded by more experienced VCs are more likely to go public. This follows both from the direct influence of more experienced VCs and from sorting in the market, which leads experienced VCs to invest in better companies. Sorting creates an endogeneity problem, but a structural model based on a Two-Sided Matching model is able to exploit the characteristics of the other agents in the market to separately identify and estimate influence and sorting. Both effects are found to be significant, but sorting is almost twice as important as influence for the difference in IPO rates.

Keywords: Venture Capital, Selection Problem, Two-Sided Matching, Bayesian Estimation, MCMC

JEL Classification: C12, C39, C79, G28

Suggested Citation

Sorensen, Morten, How Smart is Smart Money? A Two-Sided Matching Model of Venture Capital (January 2006). Available at SSRN: https://ssrn.com/abstract=878692 or http://dx.doi.org/10.2139/ssrn.878692

Morten Sorensen (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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