Abstract

This paper explores the impact of VC investment on portfolio firms using a novel econometric technique that allows for a nuanced examination of positive and negative impact of VC on portfolio firms. It is well-documented that VCs aim to maximise their number of ‘home runs’, or massively successful investments, while minimising ‘strike outs’, or failed investments (Sahlman 1990, Sapienza et al 1994). It is also clear that VCs have limited amounts of time and attention, forcing them to make decisions about which firms should receive beneficial attention and which should not (Gifford 1997). However given their time limitations and role as optimisers, it could reasonably be expected that VCs focus on high potential firms while hastening the demise of firms they judge as lacking high growth potential.

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