Thomas Hellmann - University of Oxford

"Tolerating Losses for Growth: How US Venture Capitalists Invest Abroad"


Start-ups face a trade-off between profitability and growth where pursuing more ambitious development strategies requires investors who are willing to tolerate prolonged financial losses. This involves staged financing which comes with a risk of not obtaining follow-on funding. This paper tests the hypothesis that US venture capitalists abroad are more loss tolerant that their non-US counterparts, due to better access to follow-on funding. Using detailed data from Sweden, we find that companies backed by US venture capitalists are more likely to receive follow-on funding. Swedish start-ups backed by US investors have higher cumulative losses than those backed by non-US venture capitalists. They are also more likely to be in the bottom decile of the cumulative profit distribution. Importantly, this relationship can be accounted for precisely with differential access to follow-on funding. The paper further finds that US backed companies experience higher sales growth and are more likely to achieve successful exits. Overall, the analysis establishes that US venture capitalists in Sweden practise a more loss-tolerant investment style than their non-US counterparts.

Additional information:

  • Speaker: Thomas Hellmann
  • Time: Wednesday, 28.06.2023, 14:45 - 16:00
  • Location: Faculty Lounge, Room 0.036 / Online via Zoom
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  • Organizer: Finance Group
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