When Venture Capital is Patient Capital: Seed funding as a source of patient capital for high-growth companies

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Abstract

Patient capital is vital to start-up companies which often struggle to access traditional finance. This article conceptualises the conditions in which venture capital (VC) demonstrates patience in an effort to better understand the sources of patient capital available for start-up companies. VC investment stage is identified as a key determinant of VC patience. VC ‘seed stage’ investing demonstrates patience through its long intended investment horizon, engagement focused on long-term value and loyalty in the face of poor short-term performance. Companies receiving seed funding, then ‘follow-on’ funding, receive the most patient form of venture capital. An empirical analysis reveals that VC seed activity has proliferated across the United States, United Kingdom, Germany and Japan since the run-up to the Global Financial Crisis. The article concludes that venture capital is a growing source of patient capital for start-up companies, though several factors confound its intertemporal and intra-portfolio patience.
Original languageEnglish
Pages (from-to)691–708
JournalSOCIO-ECONOMIC REVIEW
Volume14
Issue number4
Early online date29 Oct 2016
DOIs
Publication statusPublished - Oct 2016

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