Early indicators of fundraising success by venture capital firms |
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| Institution: | 1. Department of Accounting and Finance, The Open University Business School, The Open University, Walton Hall, Milton Keynes MK7 6AA, UK;2. Centre for Business Research, Judge Business School, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, UK;3. College of Business, Illinois State University, Campus Box 5480, Normal, IL 61790, United States;1. Silberman College of Business, Fairleigh Dickinson University, Madison, NJ 07940, United States;2. Department of Entrepreneurship & Emerging Enterprises, Whitman School of Management, Syracuse University, Syracuse, NY 13244, United States;1. Politecnico di Milano, Italy;2. University of Bergamo, Italy |
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| Abstract: | We show how a venture capital firm's fundraising is affected by its investment choices. We investigate three leading indicators that are calculated from the types of investments the venture capital firms make: style drift investments, follow-on investments, and investments in which the venture capital firm is not the lead investor in the portfolio company. We find that these investment characteristics are associated with lower fundraising. Characteristics and the reaction of fundraising to characteristics are both moderately stable through time. We also find some evidence that information about investment characteristics is more important for fundraising during bad states of the world and that ex-ante characteristics are related to eventual exit outcomes and financial performance. |
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