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How Smart Is Smart Money? A Two-Sided Matching Model of Venture Capital



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    • Sørensen is from the University of Chicago, GSB. I want to thank Tim Bresnahan for inspiration and encouragement throughout this project and Susan Athey, Patrick Bajari, Peter Coles, Liran Einav, Thomas Hellmann, Yael Hochberg, Steve Kaplan, Laura Lindsey, Joao Manoel de Mello, Manju Puri, Garth Saloner, Ed Vytlacil, Pai-Ling Yin, an anonymous referee, and many seminar participants for helpful discussions and comments. I gratefully acknowledge financial support from the Danish Research Academy, the Forman Fellowship, and the Kapnick Foundation, which provided a grant through the Stanford Institute for Economic Policy Research.


I find that companies funded by more experienced VCs are more likely to go public. This follows both from the direct influence of more experienced VCs and from sorting in the market, which leads experienced VCs to invest in better companies. Sorting creates an endogeneity problem, but a structural model based on a two-sided matching model is able to exploit the characteristics of the other agents in the market to separately identify and estimate influence and sorting. Both effects are found to be significant, with sorting almost twice as important as influence for the difference in IPO rates.

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