Abstract

Venture capital (VC) investment has emerged as an important component of entrepreneurship. As such, researchers have provided important insights on a range of factors associated with VC investment decisions (Petty and Gruber, 2011). A hallmark of this literature is that VC investment is viewed largely from the perspective of initial investment. While the initial investment decision is a critical hurdle that many entrepreneurs must overcome, it marks the beginning rather than the end of a lengthy process. Specifically, it is well-documented that VCs generally allocate capital in a series of contingent rounds (Sahlman, 1990), where the decision to reinvest is continually revisited. Thus, we have a growing understanding of why VCs “get in the game”, but we know little about the influences that determine follow-on investments. To address this gap, we conceptually and empirically investigate VC reinvestment decisions. Our model acknowledges that financial and market performance metrics play a central role in reinvestment decisions. However, given the conditions of heightened uncertainty, these decisions are not as straightforward as one might expect because there are number of contextual and social factors brought to bear and in some cases these considerations trump performance outcomes (Guler, 2007). Thus, this research seeks to enhance our understanding of the social, non-economic factors influencing funding decisions in subsequent investment rounds.

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