Exploration or Exploitation? Hedge Funds in Venture Capital

32 Pages Posted: 11 Oct 2018

See all articles by George O. Aragon

George O. Aragon

Arizona State University (ASU) - Finance Department

Emma Li

Deakin University

Laura Anne Lindsey

Arizona State University (ASU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: September 18, 2018

Abstract

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

Aragon, George O. and Li, Emma and Lindsey, Laura Anne, Exploration or Exploitation? Hedge Funds in Venture Capital (September 18, 2018). Available at SSRN: https://ssrn.com/abstract=3251086 or http://dx.doi.org/10.2139/ssrn.3251086

George O. Aragon (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Emma Li

Deakin University ( email )

Australia

Laura Anne Lindsey

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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