Does a VC’s Commitment Lead to Improved Investment Outcomes? Evidence From Climate Startups

74 Pages Posted: 19 Sep 2022 Last revised: 15 Feb 2024

See all articles by Aaron Burt

Aaron Burt

Oklahoma State University - Stillwater - Department of Finance

Jarrad Harford

University of Washington; European Corporate Governance Institute (ECGI)

Jared R. Stanfield

University of Oklahoma; Financial Research Network (FIRN)

Jason Zein

UNSW Business School; Financial Research Network (FIRN)

Date Written: February 13, 2024

Abstract

We assess whether a VC’s intrinsic commitment to a startup affects investment performance. We proxy for climate commitment using individual VCs’ contributions to the Democratic Party. Investments by Democrat VCs in climate startups have 8% higher round-to-exit returns and 29% higher round-to-exit multiples. Democrat VCs are more likely to sit on a climate startup’s board and these startups are more likely to obtain patents following a Democrat VC’s investment. Local climate-related natural disasters that exogenously increase a non-Democrat’s climate commitment results in higher exit returns. Our results are consistent with the importance of commitment in active (vs. passive) investing.

Keywords: Venture Capital, Private Equity, Impact Investing, Climate, Political, Performance

JEL Classification: G24, G32, G34, L26, M14, O31, O32, Q50, Q54

Suggested Citation

Burt, Aaron Paul and Harford, Jarrad and Stanfield, Jared R. and Zein, Jason, Does a VC’s Commitment Lead to Improved Investment Outcomes? Evidence From Climate Startups (February 13, 2024). UNSW Business School Research Paper, Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Available at SSRN: https://ssrn.com/abstract=4211750 or http://dx.doi.org/10.2139/ssrn.4211750

Aaron Paul Burt

Oklahoma State University - Stillwater - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States

Jarrad Harford

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)

HOME PAGE: http://faculty.washington.edu/jarrad/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jared R. Stanfield (Contact Author)

University of Oklahoma ( email )

Norman, OK 73019
United States

HOME PAGE: http://jaredstanfield.com

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jason Zein

UNSW Business School ( email )

Sydney, NSW 2052
Australia
+61 2 93855858 (Phone)
+61 2 93855858 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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