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

TY - JOUR

T1 - When Venture Capital is Patient Capital

T2 - Seed funding as a source of patient capital for high-growth companies

AU - Klingler-Vidra, Robyn

PY - 2016/10

Y1 - 2016/10

N2 - 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.

AB - 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.

U2 - 10.1093/ser/mww022

DO - 10.1093/ser/mww022

M3 - Article

SN - 1475-1461

VL - 14

SP - 691

EP - 708

JO - SOCIO-ECONOMIC REVIEW

JF - SOCIO-ECONOMIC REVIEW

IS - 4

ER -