Venture Capital and the Survival of Entrepreneurial Firms in Crisis Periods: The Case of Covid-19.

Abstract

This paper investigates the survival of entrepreneurial firms during the pandemic period. Specifically, we focus on UK companies that received equity finance during their developmental stages before the onset of Covid-19. The equity finance investors in our study include venture capital and growth finance funds (both domestic and foreign), crowd funding platforms, business angels, and government venture capital funds. We build on the resource-based view (RBV) and signalling theories to develop our hypotheses. We analyse the bankruptcy processes of companies during the Covid-19 period, comparing it to the pre-Covid period. We examine various characteristics of these firms, such as their investor type, deal history (including timing, magnitude, and duration), as well as a range of financial and non-financial factors. Furthermore, we identify the equity-backed companies that utilized policy interventions in the form of guaranteed loans. We gather details about the loan contracts, lenders, and instances of loan default. This study explores the relationship between bankruptcy and loan default in relation to the firm's characteristics, investor type, investment dimensions and financial constraints. The results provide valuable insights into the link between equity financing and venture survival during crises, with important implications for policy interventions. JEL classifications G12. G33. H81. L26