Three Essays on Venture Capital

This dissertation examines three different topics related to venture capital. The focus of the first essay is on bank-affiliated (BVC) funds' investments. We investigate their investment activity, and we find that BVC-backed rounds are associated with the presence of additional unique investors and greater financing. We use their tendency to invest in syndicates to distinguish between different syndicating behaviours, and we find that when BVCs act as followers, the estimated effects associated with their presence in a round are reduced significantly. The level of overall and industry experience explains their syndicating behaviour and influences the outcomes associated with their investments. In terms of investment outcomes, BVC overall experience is associated with an increase in investors, while greater industry experience leads to an increase in the financed amount. In the second essay, we investigate the activity of bank-affiliated venture capital funds (BVC). Although the common approach in the literature relies on aggregate measures of VCs investments at country-year level, we conduct our analysis at deal-level, and we enrich the determinants used in the literature with deal and banking sector characteristics. We find that BVC presence is positively correlated with larger rounds both in terms of investors and financing. Among the macroeconomic factors that are common in the literature, we find a negative effect for GDP per capita growth and a positive one for Central Banks policy rates. Stock-market characteristics are also relevant, as BVCs presence is positively correlated with annual stock market returns, but negatively with the number of listed firms. Additionally, we show how BVCs activity is positively associated with the share of the banking sector share of foreign ownership and soundness, while it is negatively correlated with its profitability. The third, and last, essay is a methodological paper that challenges the common approach to study the effects of VCs financing. In the venture capital literature, it is standard practice to build a control sample of non-VC-backed firms, which are matched with the treated firms using a set of characteristics assumed to be desirable from the VC standpoint. In this paper, we contribute to the topic by introducing a matching procedure based on the firm’s probability to go public, when the IPO is one the most desirable outcomes for VCs. We use this new sample to test three general hypotheses on the effects of VCs investments on their portfolio firms. In the preliminary evidence, we fail to find any evidence supporting the view that VCs select firms with better productivity. Furthermore, we do not find a change in the level of productivity following VCs’ investment, but we do report a positive effect on the productivity growth rate. When considering a more general measure of firms’ performance, we show that VC-backed firms have a significantly higher turnover in the two years prior to the VC investment, and the difference increases after the first-round.

This dissertation examines three topics related to venture capital. In the first essay, which deals with bank-affiliated (BVC) funds' investments, we analyze BVC-backed rounds and find that BVC-backed rounds are associated with the presence of additional unique investors and greater financing. Both Overall and Industry experience influence BVCs’ syndicating behavior and affect investment outcomes: BVC overall experience is associated with an increase in investors, while greater industry experience leads to an increase in the financed amount. The second essay investigates BVC activity, adopting a deal-level approach and enriching country-level determinants with deal and banking sector characteristics. Among the macroeconomic factors, we find a negative effect for GDP per capita growth and a positive one for Central Banks policy rates. Stock-market characteristics are also relevant, as BVCs presence is positively correlated with annual stock market returns, but negatively with the number of listed firms. We show how BVCs activity is positively associated with the banking sector share of foreign ownership and soundness, while it is negatively correlated with its profitability. In the VC literature, it is standard practice to match private firms with the VC-backed firms using a set of characteristics assumed to be desirable from the VC standpoint. In the third essay, we contribute to the topic by introducing a matching procedure based on the firm’s probability to go public. Testing three hypotheses on the effects of VCs financing on their portfolio firms, we find no evidence supporting the view that VCs select firms with better productivity. Additionally, we do not find any change in the productivity level post-investment, but a positive effect on the productivity growth rate. VC-backed firms exhibit significantly higher turnover in the two years before and after the first round