Competition and Specialization in the VC Market: A Non-Monotonic Relationship

32 Pages Posted: 8 Mar 2014 Last revised: 29 Jan 2023

See all articles by Christos Cabolis

Christos Cabolis

IMD; Yale SOM International Center for Finance

Mian Dai

Drexel University

Konstantinos Serfes

Drexel University

Date Written: May 14, 2020

Abstract

We investigate the relationship between competition and stage specialization in the venture capital (VC) markets. A typical successful entrepreneurial company goes through multiple stages of VC investments; but an average VC firm specializes and participates only in a subset of these stages. We hypothesize that a VC firm's decision to stage-specialize (or not) poses a trade-off between business expansion and competition mitigation. Both effects are influenced by the intensity of competition. Consistent with a prediction of the theoretical model, we find robust empirical evidence for a non-monotonic relationship--an inverted-U shape--between competition and stage specialization in the U.S VC markets between 1980 and 2012. This result is novel and can have interesting managerial and policy implications.

Suggested Citation

Cabolis, Christos and Dai, Mian and Serfes, Konstantinos, Competition and Specialization in the VC Market: A Non-Monotonic Relationship (May 14, 2020). Available at SSRN: https://ssrn.com/abstract=2405829 or http://dx.doi.org/10.2139/ssrn.2405829

Christos Cabolis

IMD ( email )

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Yale SOM International Center for Finance ( email )

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Mian Dai

Drexel University ( email )

Philadelphia, PA 19104
United States

Konstantinos Serfes (Contact Author)

Drexel University ( email )

3220 Market Street
Philadelphia, PA 19104
United States
215-895-6816 (Phone)
215-571-4670 (Fax)

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