Venture Capital Staging: Domestic VC-Led versus Foreign VC-Led Investments

Abstract

How do domestic VC-led and foreign VC-led investments differ in staged financing? We propose that domestic VCs will be more active than foreign VCs in learning through investing to tackle information asymmetry, agency concerns and project-specific uncertainty. We further expect that domestic VCs will be more responsive than foreign VCs to changes in external environment. The empirical analysis indicates that agency concerns and project-specific uncertainty (as reflected in early-stage ventures) prompt VCs to accelerate staging, whereas market volatility delays each round of financing. We further find some differences between domestic VC-led and foreign VC-led investments: Domestic VCs tend to invest in early-stage ventures with shorter durations between rounds of financing than do foreign VCs, and the delay effect of market volatility is also much more salient for foreign VC-led investments.

Keywords: cross-border venture capital, staging, agency, uncertainty, real options