INTEREST RATES AND VENTURE CAPITAL INVESTMENTS: Early evidence of the heterogeneous effects of rising interest rates across funding stages

Sammanfattning: This thesis examines the impact of rising central bank interest rates on European venture capital investment activity between 2016 and the first quarter of 2023. Using a comprehensive dataset of 32,832 funding rounds across different funding stages, we run a set of regressions to study the relationship between interest rates and VC investments measured by total invested amounts, number of rounds, and average round size. While we find no evidence for an effect of interest rates on overall VC investment activity, our findings reveal that rising interest rates have heterogenous effects on VC investments across different funding stages. We observe that higher interest rates lead to increased total invested amounts for seed-stage rounds and a decrease for early- and late-stage rounds. Additionally, higher interest rates correspond to a decline in the number of early-stage rounds, while no significant effect is found for seed- or late-stage rounds. Higher interest rates are also associated with increased average round sizes for seed-stage rounds, a marginal increase for early-stage rounds, and a decrease for late-stage rounds. Finally, higher interest rates negatively affect the odds of a round being early- or late-stage, as opposed to seed-stage.