Faculty Digital Archive

Archive@NYU >
Stern School of Business >
Finance Working Papers >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27397

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-May-2007
Series/Report no.: FIN-07-028
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/2451/27397
Appears in Collections:Finance Working Papers

Files in This Item:

File Description SizeFormat
FIN-07-028.pdf342.79 kBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.

 

The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS