On the Life Cycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms

We use data over 25 years to understand the life cycle dynamics of VC- and non-VC-financed firms. We find successful and failed VC-financed firms achieve larger scale but are not more profitable at exit than matched non-VC-financed firms. Cumulative failure rates of VC-financed firms are lower, with...

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Bibliographic Details
Published in:The Journal of finance (New York) 2012-12, Vol.67 (6), p.2247-2293
Main Authors: PURI, MANJU, ZARUTSKIE, REBECCA
Format: Article
Language:English
Subjects:
Acquisitions
Business failures
Business structures
Capitalism
Capitalization
Certificates of deposit
Dynamics
Employment
Employment statistics
Failure
Financial performance
Firm theory
High technology industries
Initial public offerings
Internet
Life cycles
Studies
Venture capital
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Summary:We use data over 25 years to understand the life cycle dynamics of VC- and non-VC-financed firms. We find successful and failed VC-financed firms achieve larger scale but are not more profitable at exit than matched non-VC-financed firms. Cumulative failure rates of VC-financed firms are lower, with the difference driven largely by lower failure rates in the initial years after receiving VC. Our results are not driven by VCs disguising failures as acquisitions or by certain types of VCs. The performance difference between VC- and non-VC-financed firms narrows in the post-internet bubble years, but does not disappear.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2012.01786.x