Competition for Talent: The Impact of Venture Capital Investments on Incumbent Firms

Abstract

This paper identifies a new channel, competition for talent, through which venture capital (VC) investments affect incumbent firms. Using a unique payroll dataset, I find that VC investments increase the wage growth of high-skilled workers at local incumbents, while there is no effect for low-skilled workers. This impact is particularly strong in regions with inelastic labor supply. Establishment-level high-skilled employment growth at incumbents is negatively correlated with local VC investments, but it is positively correlated with VC investments in other areas where the parent firm operates, highlighting the spillover effects of competition for talent through firms’ internal network of establishments.

Keywords: VC investments, competition for talent, spillover effect, wages and employment