How and When Venture Capital Affects the Investment of Portfolio Firms

33 Pages Posted: 21 Sep 2012

See all articles by Fabio Bertoni

Fabio Bertoni

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control

Annalisa Croce

Polytechnic University of Milan - Dipartimento di Economia e Produzione

Massimiliano Guerini

University of Pisa - DESE

Date Written: September 20, 2012

Abstract

This work studies how and when venture capital (VC) affects the investment of its portfolio firms. We estimate an Error Correction Model that takes into account the non-linearity of the investment curve on a sample of 361 young high-tech firms in 6 European countries. The direct effect of VC on firm's investment is positive and significant only when internal financial constrains are limited. The indirect effect of VC determines a structural change in the investment curve through the reduction of external financial constraints. This effect is particularly significant when firms receive follow-on rounds.

Keywords: investment curve, young high-tech companies, financial constraints, venture capital

JEL Classification: G32, D92, G24

Suggested Citation

Bertoni, Fabio and Croce, Annalisa and Guerini, Massimiliano, How and When Venture Capital Affects the Investment of Portfolio Firms (September 20, 2012). Available at SSRN: https://ssrn.com/abstract=2149544 or http://dx.doi.org/10.2139/ssrn.2149544

Fabio Bertoni

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control ( email )

23, av. Guy de Collongue BP 174
69132 Ecully Cedex
France

Annalisa Croce (Contact Author)

Polytechnic University of Milan - Dipartimento di Economia e Produzione ( email )

Piazza Leonardo da Vinci, 32
Milan, 20133
Italy

Massimiliano Guerini

University of Pisa - DESE ( email )

Largo Lucio Lazzarino
Pisa, Pisa 56122
Italy

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