Do Venture Capitalists Stifle Competition?
56 Pages Posted: 27 Nov 2019 Last revised: 10 Sep 2020
Date Written: May 28, 2020
We find that common ownership leads VCs to stifle competition among startups, but only in limited circumstances. Our evidence is from pharmaceutical startups, where common ownership is widespread. We examine how a startup responds after seeing a competitor make progress on a related drug project. If the two startups share a common VC, the lagging startup is less likely to advance its own project and obtain VC funding, which reduces competition between the startups. These anticompetitive effects, however, are limited to concentrated product markets, technologically similar projects, early-stage projects, and VCs with larger equity stakes and less-diversified portfolios.
Keywords: venture capital, common ownership, competition, healthcare
JEL Classification: G24, L41, L10
Suggested Citation: Suggested Citation