The Impact of Busyness on Venture Capital Screening

Sammanfattning: Title: The Impact of Busyness on Venture Capital Screening Seminar Date: 2021-06-02 Course: BUSN79 Authors: Antonio David Trevisany and Henrik Hultquist Supervisor: Håkan Jankensgård Keywords: Venture Capital, VC, Distraction, Industry Shock, Screening, Pre-Investment Screening, MOIC, Panel Data Purpose: The main purpose of the thesis is to understand whether venture capitalists are able to select ventures with an ex-ante higher likelihood of success. To impose variation to VCs’ ability to select the right ventures, we use industry shocks as a measure of distraction. Theoretical Framework: Pre-investment screening, deal sourcing, investment sorting process, due diligence, term sheet, screening criteria, syndication, monitoring, exit. Methodology: This thesis will use a quantitative research approach using fixed effect regression analysis of a panel data set. We use two dependent variables in the form of an exit multiple (MOIC) and an exit dummy. Several controls will be used, and robustness tests will be implemented. Empirical Foundation: The final sample consists of 45,772 investment observations from 87 quarters. Both the VC firms and the portfolio companies are from the US. The investment and exit data was retrieved from Refinitiv Eikon and the industry returns were retrieved from Wharton Research Data Services. Conclusion: We find that distraction induced by industry shocks and moderated in impact by the weight of the affected portfolio, is not sufficiently pronounced to impact portfolio company outcomes. To validate our results, we exploit heterogeneity in the treatment intensity by introducing variables that reinforce busyness and the impact of the industry shock. We find that busyness is especially severe when VC funds predominantly engage in lead investments. However, we find no evidence to support the notion that syndication, as a means to distribute additional advice across co-investors, mitigates busyness.