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VC Participation and failure of startups: Evidence from P2P lending platforms in China

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  • Li, Xiaoyang
  • Hasan, Iftekhar

Abstract

We investigate how VC participation affects the failure of startups. Using a unique dataset of the survival of peer-to-peer (P2P) platforms in China, we identify two types of failures, bankruptcy, and run off with investors’ money. The Competing Risk Model results show that while VC participation reduces bankruptcy hazard, it has little impact on the runoff failures. The findings are robust to the use of matched subsamples that disentangle the influence of pre-investment screening by VC. Further analysis of exit routes reveals that conditional on failure, VC participation is associated with a higher chance of running for the exit.

Suggested Citation

  • Li, Xiaoyang & Hasan, Iftekhar, 2021. "VC Participation and failure of startups: Evidence from P2P lending platforms in China," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320309259
    DOI: 10.1016/j.frl.2020.101726
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    More about this item

    Keywords

    Venture capital; Startup; P2P platform; Corporate failure;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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