TY  - JOUR
AU  - Hellman,Thomas
AU  - Lindsey,Laura
AU  - Puri,Manju
TI  - Building Relationships Early: Banks in Venture Capital
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10535
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10535
L1  - http://www.nber.org/papers/w10535.pdf
N1  - Author contact info:
thomas_hellman

Laura Lindsey
Dept. of Finance
Arizona State University
Tempe, AZ 85287
E-Mail: laura.lindsey@asu.edu

Manju Puri
Fuqua School of Business
Duke University
1 Towerview Drive, Box 90120
Durham, NC 27708-0120
Tel: 919/660-7657
Fax: 919/681-6246
E-Mail: mpuri@duke.edu
AB  - 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.
ER  -