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

Abstract

Matching and bargaining have significant welfare implications in financial markets. Using real-stakes experiments with US venture capitalists (VCs) and startups, alongside real-world portfolio data, we estimate a search-and-matching model with bargaining to examine payoffs from collaborations. Agents with predetermined appealing characteristics gain more bargaining power in equilibrium, leading to substantial variation in payoff splits across heterogeneous deals, ranging from 2:1 to 1:2 between a startup and a VC. Consequently, having smaller payoff shares offsets agents' benefits from collaborating with appealing counterparties. Overall, this paper highlights that bargaining is the key factor in determining agents' benefits from matching in entrepreneurial finance.

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

JEL Classification: G24, L26, C78, C93