Does acquiring venture capital pay off for the funded firms? A meta-analysis on the relationship between venture capital investment and funded firm financial performance

Researchers and practitioners frequently propose that venture capital (VC) is an important resource to increase the performance of funded firms, especially in environments of uncertainty. In this paper we scrutinize these theoretical propositions, following an evidence-based research approach. We synthesize 76 empirical samples on 36,567 firms. We find a small positive performance effect of VC investment on funded firm performance; however, the effect vanishes if researchers control for industry selection effects. Furthermore, we find that the performance effect mainly relates to firm growth while profitability is unaffected. We also uncover that performance effects are reduced when the funded firms are very young or very mature. In addition, studies focusing on IPO events, which constitute the majority of studies, determine a substantially smaller performance effect. We discuss theoretical implications and offer suggestions for future research on VC.

► Venture capital (VC) has a small positive impact on funded firm performance. ► Industry selection accounts for a major part of the positive effect. ► Firms benefit mainly in terms of higher growth and improved stock market performance. ► Firms benefit most from VC funding when they have been in operation for a few years, but have not matured yet. ► VC investments are most beneficial in the pre-IPO stage.