On the Lifecycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms

We use a new data set that tracks U.S. firms from their birth over two decades to understand the life cycle dynamics and outcomes (both successes and failures) of VC- and non-VC financed firms. We examine how important VC is in new firm creation. We ask what kind of firms do VCs invest in and how do such firms differs from firms financed solely by non-VC sources of entrepreneurial capital. We then ask what the eventual differences in outcomes are for firms that receive VC financing relative to non-VC-financed firms. Our findings suggest that VCs typically invest in young firms with large scale. The main way that VC financed firms differ from matched non-VC financed firms, is they demonstrate remarkably larger scale both for successful and failed firms. VC-financed firms grow more rapidly, but we see little difference in profitability measures at times of exit. We examine in depth VC-financed firms' failure. We find that VC-financed firms' cumulative failure rates are lower than those of non-VC-financed firms but the story is nuanced. VC-financed firms are less likely to fail in the first four years after first receiving VC, but conditional on surviving past this point become more likely to fail relative to non-VC-financed firms. We do not find that VC has more stringent survival thresholds nor that VC-financed firm failures are disguised as acquisitions nor that particular kinds of VC firms are driving our results. We find that the performance differential between VC- and non-VC-financed firms narrows in the post internet bubble years, but does not disappear