Building Relationships Early: Banks in Venture Capital / Thomas Hellman, Laura Lindsey, Manju Puri.

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Hellman, Thomas

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w10535.Publication details: Cambridge, Mass. National Bureau of Economic Research 2004.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: The importance of an investor's organizational structure is increasingly recognized in modern finance. This paper examines the role of banks in the US venture capital market. Theory suggests that unlike independent venture capital firms, banks can seek complementarities between their venture capital and lending activities. Our empirical analysis suggests that banks use their venture capital investments to build relationships for their lending activities. Banks target their venture investments to companies that are more likely to subsequently raise loans, and having made an investment as a venture capitalist increases a bank's likelihood of providing a loan. Companies may benefit from these relationships through more favorable loan pricing. The analysis suggests that banks are strategic investors in the venture capital market with investment patterns distinct from independent venture capitalists. It also provides a cautionary note for relying on banks for the development of a venture capital industry.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w10535 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w10532 Fiscal Policy and Financial Depth /	nber w10533 Dealing with Destabilizing 'Market Discipline' /	nber w10534 International Reserves Management and Capital Mobility in a Volatile World: Policy Considerations and a Case Study of Korea /	nber w10535 Building Relationships Early: Banks in Venture Capital /	nber w10536 Mergers and Acquisitions in the Pharmaceutical and Biotech Industries /	nber w10537 Do Stock Price Bubbles Influence Corporate Investment? /	nber w10538 The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries /	Next

June 2004.

The importance of an investor's organizational structure is increasingly recognized in modern finance. This paper examines the role of banks in the US venture capital market. Theory suggests that unlike independent venture capital firms, banks can seek complementarities between their venture capital and lending activities. Our empirical analysis suggests that banks use their venture capital investments to build relationships for their lending activities. Banks target their venture investments to companies that are more likely to subsequently raise loans, and having made an investment as a venture capitalist increases a bank's likelihood of providing a loan. Companies may benefit from these relationships through more favorable loan pricing. The analysis suggests that banks are strategic investors in the venture capital market with investment patterns distinct from independent venture capitalists. It also provides a cautionary note for relying on banks for the development of a venture capital industry.