The times they are a‐changin': how venture capital firms change their investment practices under the COVID-19 pandemic.
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| Authors: | Ambrois, Matteo1 (AUTHOR) matteo.ambrois@polimi.it, Butticè, Vincenzo1 (AUTHOR) vincenzo.buttice@polimi.it, Croce, Annalisa1 (AUTHOR) annalisa.croce@polimi.it, Grilli, Luca1 (AUTHOR) luca.grilli@polimi.it, Ughetto, Elisa2 (AUTHOR) elisa.ughetto@polito.it |
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| Source: | Small Business Economics. Aug2025, Vol. 65 Issue 2, p871-893. 23p. |
| Subject Terms: | *Venture capital, *COVID-19, *Limited partnership, *Investment management, Social capital, Crises |
| Abstract: | This study examines how venture capital (VC) firms have modified their short-term investment practices in response to the COVID-19 crisis. We categorise VCs' investment practices according to their level of visibility to external parties and hypothesise that unobservable investment practices are more likely modified than observable ones, since VC firms must comply with the objectives stated in their contracts with limited partners (LPs), and deviations may be viewed negatively by investors. Changing investment practices may have a negative impact on a VC firm's reputation, but this potential reputational damage could vary along with the reputational capital already possessed by the VC firm and its degree of exposure in a VCs' network. An empirical analysis based on a global survey of VC firms confirms these theoretical presumptions, shedding light on how the industry operates and responds to unique crises such as the COVID-19 pandemic. Specifically, younger and smaller VC firms are found to be more reluctant than larger and older ones to modify observable investment practices. Similarly, VC firms that are more central in a network of investors are also found to be more hesitant to modify observable investment practices. Plain English Summary: How have VC firms adjusted their short-term investment practices in response to the COVID-19 crisis? By distinguishing investment practices based on their visibility to external stakeholders (e.g. limited partners, or LPs), we offer insights into how VCs respond to crises. Our findings indicate that general partners (GPs) are more reluctant to alter structural, stakeholder-visible investment practices compared to those that are less observable. This tendency is especially pronounced among VCs with lower reputational capital, such as younger and smaller firms or those with more at stake reputationally due to their central position within investor networks. This study enhances LPs' and GPs' understanding of how the VC industry may respond under 'stressful conditions', enabling LPs to make more informed resource allocation decisions and providing GPs with a nuanced benchmark of their competitors' practices. [ABSTRACT FROM AUTHOR] |
| Database: | Entrepreneurial Studies Source |
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| Abstract: | This study examines how venture capital (VC) firms have modified their short-term investment practices in response to the COVID-19 crisis. We categorise VCs' investment practices according to their level of visibility to external parties and hypothesise that unobservable investment practices are more likely modified than observable ones, since VC firms must comply with the objectives stated in their contracts with limited partners (LPs), and deviations may be viewed negatively by investors. Changing investment practices may have a negative impact on a VC firm's reputation, but this potential reputational damage could vary along with the reputational capital already possessed by the VC firm and its degree of exposure in a VCs' network. An empirical analysis based on a global survey of VC firms confirms these theoretical presumptions, shedding light on how the industry operates and responds to unique crises such as the COVID-19 pandemic. Specifically, younger and smaller VC firms are found to be more reluctant than larger and older ones to modify observable investment practices. Similarly, VC firms that are more central in a network of investors are also found to be more hesitant to modify observable investment practices. Plain English Summary: How have VC firms adjusted their short-term investment practices in response to the COVID-19 crisis? By distinguishing investment practices based on their visibility to external stakeholders (e.g. limited partners, or LPs), we offer insights into how VCs respond to crises. Our findings indicate that general partners (GPs) are more reluctant to alter structural, stakeholder-visible investment practices compared to those that are less observable. This tendency is especially pronounced among VCs with lower reputational capital, such as younger and smaller firms or those with more at stake reputationally due to their central position within investor networks. This study enhances LPs' and GPs' understanding of how the VC industry may respond under 'stressful conditions', enabling LPs to make more informed resource allocation decisions and providing GPs with a nuanced benchmark of their competitors' practices. [ABSTRACT FROM AUTHOR] |
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| ISSN: | 0921898X |
| DOI: | 10.1007/s11187-025-01010-9 |
