Exploration or Exploitation? Hedge Funds in Venture Capital
32 Pages Posted: 11 Oct 2018
Date Written: September 18, 2018
We study the role of hedge funds in the venture capital market over 1985-2016. Hedge funds invest in companies in later stages when compared to traditional venture capitalists and outperform conditional on stage of entry. Hedge funds also invest in venture companies to exploit their stock selection skills: prior industry focus and stock-selection skill (alpha) in public equity markets predicts which industries hedge funds target in the venture market, and prior alpha predicts a higher probability of IPO for their venture targets. Finally, venture experience is valuable for hedge funds since it predicts greater public equity alpha of 1.7% per annum.
Keywords: venture capital, hedge funds, IPO, performance
JEL Classification: G11, G23, G24
Suggested Citation: Suggested Citation