Essays on entrepreneurial finance and venture capital

VC firms occasionally make investments in startups founded by their own employees. The agency hypothesis predicts that this practice is motivated by conflicts of interest—VCs pursue their private benefits by financing themselves or coworkers. Alternatively, the information hypothesis posits that VCs are utilizing their networks—the connection with founders enable VCs to better evaluate the prospects of the venture. Using historical employment data in Crunchbase, I identify connections between entrepreneurs and VC firms. My findings provide strong support for the information hypothesis. Startups raising financing from connected VCs outperform their peers in the long run. VCs exhibit superior investment performance from connected deals, and these deals generate higher demand from other VCs. Finally, VCs making investments in connected startups are better able to raise follow-on funds. In sum, my findings suggest that, in the venture capital industry, private benefits from self-dealing is not sufficient enough to outweigh reputation concerns and/or the potential financial compensation from investing in better companies.

Many thanks to Sungjoung’s dissertation committee: • Committee Chair: Michelle Lowry – Professor – Drexel University • Committee Member: David Becher – Associate Professor – Drexel University • Committee Member: Jie Cai – Associate Professor – Drexel University • Committee Member: Gregory Nini – Associate Professor – Drexel University • Committee Member: Laura Field – Professor – University of Delaware