Review of Finance Vol. 30 No. 4 2026
Venture capitalists versus deep-pocketed incumbents: startup financing strategies in the presence of competitive threats
Abstract
We examine how venture capitalists (VCs) adapt their financing strategies when investing in startups that compete against deep-pocketed incumbents. Employing textual analysis to identify a startup’s potential competitors, we show that when competitors are cash-rich, VCs deploy a financing strategy characterized by less conditionality, as observed through larger, less frequent funding rounds that are less contingent on short-term performance. This strategy requires VCs to rely more on continuous monitoring and liquidation protection, and is restricted to larger funds with specialized experience. Our results highlight that product market competition plays an important role in explaining VC financial contracting choices.
- DOI
- 10.1093/rof/rfaf070
- Volume
- 30
- Issue
- 4
- Pages
- 1227-1259
- Language
- en
- Sources
- crossref