Working Paper: NBER ID: w26521
Authors: Christian Catalini; Jorge Guzman; Scott Stern
Abstract: The majority of IPOs and acquisitions are achieved without venture capital financing, yet research has focused mostly on VC backed firms. Using founding choices and a predictive analytics approach on virtually all US registered businesses, we shed light into these “missing” growth firms. Founding choices that predict raising venture capital also strongly predict equity exits without VC. Firms with growth potential are similar to each other, irrespective of funding source. Moreover, matching firms that are born with identical observables, but only differ in whether they receive venture capital, suggests an upper bound to the returns to venture capital of 600%.
Keywords: venture capital; firm growth; entrepreneurship
JEL Codes: G24; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| observable characteristics at founding (L26) | likelihood of receiving venture capital (VC) financing (G24) |
| likelihood of receiving venture capital (VC) financing (G24) | growth outcomes for firms that did not receive VC funding (L25) |
| doubling in the estimated VC likelihood (C59) | probability of an equity growth outcome among non-VC backed firms (L25) |
| top 0.5% of the VC likelihood distribution (C46) | likelihood to achieve an equity growth outcome (G11) |
| estimated VC likelihood (C51) | equity growth within the non-VC sample (O49) |
| returns to VC (G24) | probability of growth for firms in the top 0.5% of VC likelihood distribution (L25) |