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

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