The Impact of Patient Capital

We show that investor patience shapes venture-capital (VC) investment strategies and outcomes. Through a randomized experiment with Chinese fund managers, we demonstrate that managers explicitly tailor fund duration and project holding periods to the perceived horizons of their limited partner (LP) base. We find consistent evidence in the field, exploiting a 2014 Chinese reform that opened RMB-denominated VC funds to insurers. We compare treated RMB funds to unaffected USD-denominated funds run by the same general partners (GPs), both investing in Chinese startups. Insurer entry reshaped the LP base by displacing shorter-horizon investors such as individuals. Consequently, treated funds shifted strategy toward longer holding periods and earlier-stage investments, leading to improved portfolio company exits and innovation. Our results highlight the importance of patient ultimate investors in building a successful VC ecosystem, and offer a cautionary note on the ongoing retailization of private markets.