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Proximity relations and the fate of VC-backed startups: Evidence from a global 33-year-long dataset

Author

Listed:
  • Nicolas Bédu

    (UMR ART-Dev - Acteurs, Ressources et Territoires dans le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - UPVM - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - CNRS - Centre National de la Recherche Scientifique - UM - Université de Montpellier)

  • Olivier Brossard

    (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville)

  • Matthieu Montalban

    (BSE - Bordeaux sciences économiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

The characteristics of the financial arrangements established to finance startups affect the fate of startups. Among these features, we particularly focus on the proximities and differences between venture capital (VC) investors in syndicated investments. We consider the proximities between investors in a startup and between investors and the startup. Against the background of the theoretical literature dealing with proximity relations, we distinguish five types of proximities between VC investors and between VC investors and the startups they finance: geographic, institutional, organizational, social, and cognitive. We then test six hypotheses regarding the impacts of these proximities on the likelihood of three events occurring in VC-backed startups: obtaining a later-stage round of funding, going public, and being merged or acquired. We implement these tests on a 33-year-long, 68-country sample using survival models adapted to account for tied failures and competing events. We find that the five forms of proximity relations are influential but have distinct roles. We also find that the impacts of these proximities are nonlinear in the sense that too much proximity/distance always ends up reverting the effects of proximity/distance. Finally, we observe that as the theoretical literature predicts, cognitive proximity is positively correlated with the probability of a merger and acquisition (M&A) but negatively correlated with the likelihood of an initial public offering (IPO).

Suggested Citation

  • Nicolas Bédu & Olivier Brossard & Matthieu Montalban, 2024. "Proximity relations and the fate of VC-backed startups: Evidence from a global 33-year-long dataset," Post-Print hal-04572155, HAL.
    • Handle: RePEc:hal:journl:hal-04572155
    DOI: 10.1007/s00191-024-00860-y
    Note: View the original document on HAL open archive server: https://univ-tlse2.hal.science/hal-04572155v1
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    References listed on IDEAS

    as
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    5. L. Bottazzi & M. Da Rin & T. Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 612, Dipartimento Scienze Economiche, Universita' di Bologna.
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