Venture Capital Investment Strategies Under Financing Constraints: Evidence from the 2008 Financial Crisis

43 Pages Posted: 19 May 2016 Last revised: 20 Jan 2019

See all articles by Annamaria Conti

Annamaria Conti

University of Lausanne

Nishant Dass

Georgia Institute of Technology - Scheller College of Business

Francesco Di Lorenzo

Copenhagen Business School

Stuart J.H. Graham

Georgia Institute of Technology - Scheller College of Business

Date Written: July 1, 2016

Abstract

This paper employs the 2008 financial crisis as an empirical setting to examine how investment strategies of venture capitalists (VCs) vary in the presence of a liquidity supply shock, and what the performance implications of these strategies are for their portfolio startups. We show that while, on aggregate, funded startups receive no less financing during the financial crisis than in non-crisis times, VCs allocate relatively more resources to startups operating in the VCs’ core sectors. We show that this skew allocation follows from VCs choosing to double down on their core-sector investing, rather than by a changed mix of investors or startups during the financial crisis. These effects are strongest for early-stage startups, for which information problems are most severe. Furthermore, these results are driven by the investment strategies of more-experienced VCs. Building on these findings, we find superior ex post performance among crisis-funded portfolio startups operating in more-experienced VCs’ core sectors.

Keywords: Financial Crises, Entrepreneurial Finance, Venture Capital, Portfolio Choice, Startup Performance, Innovation

JEL Classification: G11, G24, D22, M13, O3

Suggested Citation

Conti, Annamaria and Dass, Nishant and Di Lorenzo, Francesco and Graham, Stuart J.H., Venture Capital Investment Strategies Under Financing Constraints: Evidence from the 2008 Financial Crisis (July 1, 2016). Available at SSRN: https://ssrn.com/abstract=2781674 or http://dx.doi.org/10.2139/ssrn.2781674

Annamaria Conti (Contact Author)

University of Lausanne ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Nishant Dass

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-5109 (Phone)

HOME PAGE: http://scheller.gatech.edu/dass

Francesco Di Lorenzo

Copenhagen Business School ( email )

Kilevej 14A
Frederiksberg C, Copenhagen DK - 2000
Denmark

Stuart J.H. Graham

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St. NW
Atlanta, GA 30308
United States
404-385-0953 (Phone)
404-894-6030 (Fax)

HOME PAGE: http://https://www.scheller.gatech.edu/graham

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