Entrepreneurial Litigation and Venture Capital Finance

Abstract

This paper empirically examines the interaction between entrepreneurial plaintiff firm litigation and venture capital (VC). The data indicate that, relative to non-plaintiffs, firms that litigate prior to [after] obtaining VC (1) receive financing from less [more] reputable venture capitalists (VCs), (2) are subject to greater [similar] oversight by VCs, (3) receive less [more] VC funding, (4) are more likely to exit through an initial public offering than through an acquisition, and (5) when litigation occurs after VC financing, they are also less likely to be liquidated. The results are robust to different specifications, methodologies, and endogeneity checks.

Keywords: Litigation, venture capital

JEL Classification: G24, K4, L26