A Start-Upps Financing Choice, Market Capitalization, and Industrial Network: Evidence from the Biotechnology Industry

Abstract

The co-existence of independent venture capital (IVC) and corporate venture capital (CVC) in the entrepreneurial finance market raises the question of whether the source of capital matters for a start-up. To address this question, I build on the resource dependence literature suggesting that start-ups and investors may face heterogeneously distributed mutual dependence in the dyadic relations, which determines the exchange of their resources and the consequent performances. Using a longitudinal dataset on the fundraising activities of 582 biotechnology start-ups, and consistent with predictions based on the resource dependence perspective, I find that a start-up tends to increase its market capitalization when it finances from IVC; and it tends to expand its industrial network when it finances from CVC. Furthermore, this value effect from IVC financing is more salient when a start-up has strong technological capabilities; and the network effect from CVC financing is greater when a start-up purses uncertain technology.