Discussion Paper of the Institute for Organisational Economics 4/2020

Meta-Analyzing the Relative Performance of Venture Capital-Backed Firms
Todor Stefan Lohwasser
April 2020



In this study, we perform a meta-analysis on existing research covering the relationship between a venture capitalist’s involvement (VCI) and the performance (P) of funded firms. As research on this topic has been inconclusive, we aim to determine whether providers of venture capital (VC) only possess superior scouting capabilities or whether they can also provide additional value beyond the simple endowment of financial resources. Furthermore, we determine whether the nature of the institutions in the funded firms’ home countries, in terms of institutional quality and financial market efficiency, is a critical factor in the VCI – P relationship. We argue that a venture capitalist’s decision to actively engage in its portfolio firms and provide value beyond capital depends on the quality of formal institutions and the likelihood of achieving a successful exit. We test our arguments using a meta-analytical approach on a dataset of 984 effect sizes in 15 individual countries. Our results show that venture capitalists have advantages stemming from superior selection and guidance capabilities. In addition, our results confirm that higher quality of formal institutions and the efficiency of the financial market in the startups’ home countries strengthen the VCI – P relationship. In essence, we help corroborate arguments from the resource-based view, which suggest that the success of a VCI depends on institutional factors.