Ethnic Ties in US Venture Capital Stage Financing

摘要

This paper examines the effect of ethnic ties on venture capital (VC) stage financing in the US market. After dealing with the endogeneity problem, the paper shows that VC investors who share ethnicity with an entrepreneur tend to finance the company using a smaller number of rounds, longer durations between successive rounds, and a larger amount in each round. The effect is more pronounced when the startup company and the VC firm are not located in the same city or the VCs lack industry-specific expertise. My findings also suggest that such trust due to co-ethnicity leads to bad investment performance.