Resource-Based Perspective of VC Investments in Fintech

Abstract

Adopting a resource-based perspective, we study what drives venture capital (VC) investments in financial technology (fintech) startups. We test our hypotheses using a county-level dataset of over 7,100 VC investments made in the United States from 2003-2015. Using panel data, we find that the existence of large financial firms (e.g. large banks) and strong software technology industries in a county have a positive impact on the number of VC investments in fintech startups. We argue that local institutions from these industries provide important pools of resources for the success of fintech startups and increase the willingness of VC firms to invest. Our findings are consistent with the fact that fintech startups require resources from both areas, finance and technology. Furthermore, additional cross-sectional analyses indicate that fintech startups located in counties with a strong software technology industry receive ceteris paribus higher VC investments.