Asset liquidity and venture capital investment

We examine the relationship between asset market liquidity and venture capital (VC) investment and find that it is inverted U-shaped. Asset liquidity and VC investment are positively related for low levels of asset liquidity but negatively related for higher levels of asset liquidity. We also document evidence that VC firms with more industry experience invest more in a liquid asset market than those without industry experience or with significant experience in other industries. Portfolio companies obtained their first investment in a liquid asset market are less likely to exit successfully; however, given a successful exit, they prefer to exit through mergers and acquisitions rather than going public.

Automated summary

The relationship between asset market liquidity and venture capital investment follows an inverted U-shaped curve, with a positive correlation for low liquidity levels and a negative correlation for high liquidity levels. VC firms with more industry experience prefer to invest in liquid asset markets, while companies that receive their first round of investment in such markets are less likely to have successful exits, but tend to exit through mergers and acquisitions.