How Venture Capitalists and Startups Bet on Each Other: Evidence From an Experimental System

106 Pages Posted: 20 Nov 2020 Last revised: 18 Feb 2024

See all articles by Mehran Ebrahimian

Mehran Ebrahimian

Stockholm School of Economics - Finance Department

Ye Zhang

Stockholm School of Economics - Finance Department

Date Written: February 15, 2024

Abstract

This paper studies how venture capitalists (VCs) and startups choose collaboration partners and explores the corresponding welfare implications. We employ a dynamic search-and-matching model with bargaining and utilizing real-stakes placement experiments involving real US VCs and startups. Using experimental data and real-world portfolio data in our structural estimation, we quantify the impact of multiple appealing human and organizational capital traits of startups and VCs on matching outcomes and expected payoffs. Ultimately, appealing traits bring startups and VCs $0.1 to $0.5 million additional value in equilibrium. Notably, variations in matching likelihoods emerge as the dominant mechanism explaining the benefits of collaboration.

Keywords: Entrepreneurial Finance, Field Experiments, Search and Matching, Bargaining, Human Capital, Organizational Capital

JEL Classification: G24, L26, C93, C78, J24, D23

Suggested Citation

Ebrahimian, Mehran and Zhang, Ye, How Venture Capitalists and Startups Bet on Each Other: Evidence From an Experimental System (February 15, 2024). Available at SSRN: https://ssrn.com/abstract=3724424 or http://dx.doi.org/10.2139/ssrn.3724424

Mehran Ebrahimian

Stockholm School of Economics - Finance Department ( email )

Sveavägen 65
Stockholm, 11383
Sweden

HOME PAGE: http://www.mehranebrahimian.com/

Ye Zhang (Contact Author)

Stockholm School of Economics - Finance Department ( email )

Stockholm
Sweden

HOME PAGE: http://https://www.yezhang.space/

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