The impact of equity funding dynamics on venture success : an empirical analysis based on crunchbase data

Equity funding is a widespread financing form that often accompanies the life cycle of innovative ventures from initial stages until maturity. From the perspective of investors, the event defining the success of an equity financing operation is the exit, which represents the moment when they leave the venture with the purpose of selling their shares. The potential high return of equity funding has motivated an empirical literature aimed at developing predictive models in support of investors' decisions. However, no study so far has investigated how equity funding dynamics impact on a venture's chance of successful exit. In this article, we develop a multinomial logistic regression model based on the Crunchbase 2013 Snapshot that relates the events of exit and closure to the amount of equity funds raised at different rounds, while controlling for geographical location, economic sector, age, network ties and several proxies of effectiveness. Our study contributes to the existing literature by providing a quantitative assessment of the impact of equity funding dynamics on a venture's chance of successful exit and risk of closure that is not limited to the startup stage, but also covers advanced stages of development. In this way, we provide a comprehensive view of the different scenarios that may be envisioned in a venture's life cycle, which is of core importance to achieve an effective support of investors' decisions.