Events

Prof. Thomas Hellmann
DP World Professor of Entrepreneurship and Innovation
Saïd Business School
Oxford University

Policymakers across the world like to encourage innovation and high impact start-ups to spur growth. Initiatives include tempting established US venture capital firms to invest locally, betting on them to bring in capital and expertise. We document another benefit: US venture capitalists have a distinct investment style that is more tolerant of financial losses when investing abroad compared to non-US venture capital firms. We find that companies funded by US venture capitalists already have higher cumulative losses at the time of funding, and then incur further cumulative losses. They are more likely to receive subsequent funding, which is necessary to sustain their higher financial losses. Ultimately, they have a higher likelihood of a successful exit, suggesting that incurring financial losses was worthwhile. We also find that companies backed by US venture capitalists rely more on equity financing rather than debt financing, consistent with equity financing being better suited for loss making firms.