Tourist investors in venture capital and innovation

Abstract

Using data from investment rounds in venture capital backed companies, I study the characteristics of the recent trend of “tourist” venture capital investors directly investing in start-ups alongside traditional venture capitalists. More specifically, I analyze the investments made by these “tourist” VC investors – e.g. mutual funds, sovereign wealth funds, investment banks and pension funds - to determine their investment behavior compared to traditional venture capitalists. By means of descriptive statistics, I fundamentally analyze a sample constituted of more than 55,000 investments in 10,000 unique portfolio companies to identify patterns. The implications drawn, and data issues uncovered require subsequent research. Within the scope of the data sample, I find that “tourist” VC investors are likely to invest in IT and healthcare sectors, they favor “high-volume” deals, later investment rounds, larger and more mature companies compared to traditional VCs. In Addition, “tourists” seem to prefer participation in VC syndications. Though, they can act as lead investors as well.