The Heterogeneous Effect of Venture Capital on Entrepreneurial Firms' Performance

In the past two decades, venture capital has played quite an important role in promoting the growth of small and medium enterprises, which has drawn great attention from the academic circles. While there is a large amount of financial literature on the contribution of venture capital to the performance of entrepreneurial firms, there are relatively few empirical studies that identify VC firms' heterogeneous effect on the performance of entrepreneurial firms. This article selects the Chinese listed companies dated from 2009 to 2012 on the ChiNext board as the research samples and explore whether VC-backed firms in China generally outperform their non VC-backed counterparts, and if so, further exploring the effect of VC firms' heterogeneity on entrepreneurial firms' performance, with the focus on the factors of VC firms' capital background, reputation and investment approaches. Our analysis shows that VC-backed firms outperform non VC-backed firms in the aspect of growth ability. Furthermore, we find different types of VC and investment approaches also affect the performance of the venture firms differently. Ventures backed by foreign VC firms perform better in the profitability, compared to those backed by domestic VC firms. Firms backed by syndicated investment perform better in the profitability, compared to those backed by non-syndicated investment. Firms backed by staged VC investment perform better in the growth ability, compared to those backed by VC investment with non-staged financing approach. Thus we get the conclusion that foreign VC firms, VC firms with syndicated investment approach or staged financing approach can add more value to the investee companies.