NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Laura Lindsey

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Working Papers

June 2004Building Relationships Early: Banks in Venture Capital
with Thomas Hellman, Manju Puri: w10535
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 in...

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