Nascent VC Firm Entry Strategy and Long Term Survivability: Evidence from the US

Abstract

This paper comprehensively examines the survivability of Venture Capital firms based on nascent VC firm entry strategy. We bring two strands of literature together: firm entry strategy and firm survivability and examine these in the context of nascent Venture Capital firms. We study a nascent VC firm entry strategy during the first five years of its operation and its impact on long-term survivability and success of VC firms in US market. First, our results strongly point that stage financing and syndication impacts VC firm performance positively in the short run only. In the long run, however, such firms have a lower chance of surviving and are less successful. Second, VC firms adopting a multitasking strategy by being involved in a large number of deals perform poorly in the short run. However, such VC firms have higher chances of surviving and are more successful in the longer term. Third, nascent VC firms located in a major VC cluster survive longer and are more successful. Fourth, those nascent VC firms which adopt a relationship strategy and network more with other VC firms in the initial five years of their operations not only perform better in the short run but also have a higher chance of surviving in the long run.

Keywords: Nascent VC firms, Venture Capital, Firm Entry Strategy, Long-term Survival

JEL Classification: G24, M13