How Does Privacy Regulation Affect Transatlantic Venture Investment? Evidence from GDPR

Abstract

We analyze the impact of Europe’s General Data Protection Regulation (GDPR) on venture investment flows between the European Union (EU) and US. Using data on investment rounds from 2014 to 2019, we find that GDPR’s rollout in May 2018 led to a significant decline in US investor activity in the EU, evidenced by fewer deals and investment. The effects are pronounced for newer and data-related ventures, with investors shifting toward geographically closer ventures and increasing deal syndication. We find that investing in closer ventures is a key driver of the decline in investment inflows to Europe, while syndication mitigated some of the negative effects. The rise in syndication is primarily driven by US investors joining syndicates led by EU- based investors. Our findings highlight the critical role of digital policies in shaping investment strategies and influencing transatlantic capital flows.

Keywords: GDPR, Privacy, Venture Capital, Technology Venture, Local Preference, Syndication

JEL Classification: G11, K20, D8