How Venture Capitalists and Startups Bet on Each Other: Evidence From an Experimental System

Abstract

This paper studies how venture capitalists (VCs) and startups choose collaboration partners and explores the corresponding welfare implications. We employ a dynamic search-and-matching model with bargaining and utilizing real-stakes placement experiments involving real US VCs and startups. Using experimental data and real-world portfolio data in our structural estimation, we quantify the impact of multiple appealing human and organizational capital traits of startups and VCs on matching outcomes and expected payoffs. Ultimately, appealing traits bring startups and VCs $0.1 to $0.5 million additional value in equilibrium. Notably, variations in matching likelihoods emerge as the dominant mechanism explaining the benefits of collaboration.

Keywords: Entrepreneurial Finance, Field Experiments, Search and Matching, Bargaining, Human Capital, Organizational Capital

JEL Classification: G24, L26, C93, C78, J24, D23