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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27385
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| Title: | Networking as a Barrier to Entry and the Competitive Supply of Venture Capital |
| Authors: | Hochberg, Yael
Ljungqvist, Alexander
Lu, Yang |
| Keywords: | Venture Capital
Start-up Financing
Networks
Syndication
Barriers to Entry
Entry Deterrence |
| Issue Date: | 6-Mar-2007 |
| Series/Report no.: | FIN-06-005 |
| Abstract: | We examine whether networks among incumbent venture capital firms help
restrict entry into local VC markets in the U.S., thus improving
VCs’ bargaining power over entrepreneurs. We show that VC markets
with more extensive networking among the incumbent players experience
less entry. The effect is sizeable economically and appears robust to
plausible endogeneity concerns. Entry is accommodated if the entrant has
established relationships with a target-market incumbent in its own home
market. In turn, incumbents react strategically to an increased threat
of entry, in the sense that they freeze out any incumbent that builds a
relationship with a potential entrant. Finally, companies seeking
venture capital raise money on worse terms in more densely networked
markets while increased entry is associated with higher valuations. |
| URI: | http://hdl.handle.net/2451/27385 |
| Appears in Collections: | Finance Working Papers
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