Do Venture Capitalists Stifle Competition?
53 Pages Posted: 27 Nov 2019 Last revised: 19 Dec 2019
Date Written: December 6, 2019
We find that common ownership leads venture capital (VC) firms to stifle competition among startups, but only in limited circumstances. Our evidence is from pharmaceutical startups, where common ownership is widespread: 39% of startups share a VC with a close competitor. After a startup sees a close competitor make progress on a new drug project, the startup is less likely to advance its own project, and less likely to obtain VC funding, if the two startups share a common VC. These anticompetitive effects, however, are concentrated in markets with few competitors, VCs with larger equity stakes, and projects with similar technologies.
Keywords: venture capital, common ownership, competition, healthcare
JEL Classification: G24, L41, L10
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