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When do venture capital and startups team up? Matching matters

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  • Fu, Hui
  • Qi, Huilan
  • An, Yunbi

Abstract

This paper investigates the timing of venture capital (VC) investment in startups from the perspective of the matching relationship between VC firms and startups. Using data on VC investments in China, we find that matching between VCs and startups with similar quality rankings promotes VC investment in early-stage startups. The promoting effect of balanced matching is particularly pronounced for private VCs and domestic VCs. In addition, exit market liquidity strengthens this positive association, as evidenced by the finding that the effect of matching is more pronounced when the IPO market is open than when it is closed. We further show that balanced matching between the two parties helps increase the risk-taking by VCs, thereby enhancing their propensity to invest in early-stage startups.

Suggested Citation

  • Fu, Hui & Qi, Huilan & An, Yunbi, 2024. "When do venture capital and startups team up? Matching matters," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24001124
    DOI: 10.1016/j.pacfin.2024.102361
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    More about this item

    Keywords

    Venture capital; Startups; Matching; Timing of VC investment;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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