Matching and Bargaining in Entrepreneurial Finance: Evidence From an Experimental System

Abstract

We estimate a search-and-matching model with bargaining, using real-stakes experiments with U.S. venture capitalists (VCs) and startups, alongside real-world portfolio data, to examine how bargaining affects the distribution of payoffs and welfare in the startup-VC matching environment. We identify startup and VC characteristics that influence bargaining and find that 60 (55) percent of the impact of appealing characteristics on startups' (VCs') benefits from matching arises from improved bargaining power. Counterfactual analyses further reveal a nontrivial impact of search frictions on bargaining and welfare. Overall, our results highlight the first-order importance of bargaining in shaping matching outcomes in entrepreneurial financing ecosystems.

Keywords: Search and Matching, Bargaining, Entrepreneurial Finance, Field Experiments

JEL Classification: C78, G24, L26, C93