The Impact of Venture Capital Screening

58 Pages Posted: 19 Mar 2019 Last revised: 24 Nov 2020

See all articles by Rustam Abuzov

Rustam Abuzov

University of Virginia - Darden School of Business

Date Written: March 15, 2019

Abstract

I study the effect of limited attention on resource allocation by venture capitalists. Using engagement in the IPO process as a measure of distraction, I document that investments made by distracted venture capitalists into new portfolio companies tend to underperform. Such companies are 7% less likely to go public or get acquired, and also exhibit lower exit multiples. The adverse effect of the attention constraints is present only in the vicinity of the distracting IPO and manifests itself both for individual partners and venture capital funds. Overall, the results indicate that the scarcity of attention hypothesis holds in the context of deal sourcing and screening in venture capital, highlighting the presence of skill in the company selection process.

Keywords: venture capital, general partner, limited attention, screening, IPO

JEL Classification: G11, G24, M13, O31

Suggested Citation

Abuzov, Rustam, The Impact of Venture Capital Screening (March 15, 2019). Swiss Finance Institute Research Paper No. 19-14, Available at SSRN: https://ssrn.com/abstract=3353343 or http://dx.doi.org/10.2139/ssrn.3353343

Rustam Abuzov (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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