Evaluating Selection Bias in Early-Stage Investment Returns

72 Pages Posted: 25 Oct 2023 Last revised: 18 Jan 2025

See all articles by Katja Kisseleva

Katja Kisseleva

Frankfurt School of Finance & Management

Aksel Mjøs

NHH Norwegian School of Economics - Department of Finance

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Date Written: September 27, 2023

Abstract

This paper investigates sample selection bias in early-stage investment. We use comprehensive administrative data on the universe of new firm starts in Norway, allowing us to compare venture-backed firms with ex ante similar firms that do not receive venture backing. The valuation premium for venture-backing is around double at firm birth. It doubles again during the first five years of a firm's life, implying a substantial upward bias in VC returns relative to ex ante similar firms. We observe a similar, but smaller, bias for firms receiving multiple rounds of outside equity financing.

Keywords: selection, investment, entrepreneurship, venture capital, early-stage financing

JEL Classification: G11, G23, G24, G32

Suggested Citation

Kisseleva, Katja and Mjøs, Aksel and Robinson, David T., Evaluating Selection Bias in Early-Stage Investment Returns (September 27, 2023). Available at SSRN: https://ssrn.com/abstract=4585432 or http://dx.doi.org/10.2139/ssrn.4585432

Katja Kisseleva (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Aksel Mjøs

NHH Norwegian School of Economics - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

David T. Robinson

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
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National Bureau of Economic Research (NBER) ( email )

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Duke Innovation & Entrepreneurship Initiative ( email )

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