VC fund preferences and exits of individual investors*

The venture capital (VC) preferences and exits of individual investors have been a puzzle in emerging markets. Using a large dataset of limited partners (LPs) and VC funds in China, we find that compared with corporate and institutional LPs, individual LPs in the VC market prefer funds managed by reputable VCs, fund managers with prior experience as venture capitalists, nongovernment VCs, and funds with less concentrated ownership. Moreover, we find that funds with individual LPs have a greater number of exits via IPO and trade sales, and funds with individual LPs managed by reputable VCs have better exit returns. Our results further suggest that funds with individual LPs have shorter time to exit. These findings hold after controlling for different fixed effects and endogeneity issues. Collectively, our findings suggest that individual LPs seek fund characteristics known to help mitigate agency costs. Our paper sheds lights on the investment preferences of individual LPs and the impact of LP structure on VC fund exits.