Competition, Reputation, and Venture Capital Investment
48 Pages Posted: 13 Jan 2021 Last revised: 24 May 2021
Date Written: May 22, 2021
This paper examines the impact of competition on the investment behavior and outcomes of venture capital (VC) firms with differing reputations. Following the introduction of investor tax credit programs that increase competition, reputable VCs decrease the number and size of their investments. The results are more pronounced in states with lower investment requirements and lower VC supply. Reputable VCs also reduce their syndicate size and shrink the time between financing rounds. They become less likely to partner with serial founders and their performance deteriorates. Our results suggest that increasing competition depresses returns for reputable VCs, hurting their incentive to invest.
Keywords: Venture capital, reputation, competition, investor tax credit
JEL Classification: G24, G28, G34
Suggested Citation: Suggested Citation