Work

Effect of Financial Clusters on Startup Mergers and Acquisitions

Year: 2021

Type: article

Abstract: The conventional wisdom has maintained that being in proximity to entrepreneurial ecosystems helps startups to raise financing, develop and grow. In this paper, we examine the effect of a major component of an entrepreneurial ecosystem-financial or venture capital clusters on the exit of a startup through mergers and acquisitions (M&A). We find that probability of successful exit through M&A increases if the venture capitalist invested in the startup is in a venture capital (VC) cluster. Location of the startup in a top VC cluster is not significant for success once we control for the location of the VC in a top VC cluster.Our results are robust to different specifications of the models that use different time periods, reputation of VC, industry, and the quality of the startup company. Our results provide evidence for VCs, startups and policy makers who want to better understand the components of entrepreneurial ecosystems and their relation to the M&A exits of startups.

Source: International Journal of Financial Studies

DOI: 10.3390/ijfs10010001

Authors: Saurabh Ahluwalia, Sul Kassicieh

Institution: University of New Mexico

Language: English

Topic: Private Equity and Venture Capital

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: gold

Estimated APC paid: $1,512