The willingness of PVCs to invest GVCs backed ventures: the role of institutional logics

It is important to evaluate whether public direct intervention in the form of governmental venture capitalists (GVCs) have bridged the equity gap by stimulating more investments from private venture capitalists (PVCs). However, empirical evidence for this relationship is inconclusive. Drawing on institutional logic perspective and organizational tensions literature, we hypothesize that PVCs are less likely to invest in a venture whose prior round is backed by GVCs, owing to the conflicts or tensions between PVCs’ professional logic and GVCs’ state logic. To substantiate our argument, we further examine two moderators that revise either GVCs’ or PVCs’ conformity to their logics: limited partnership (LP) and VC status. We hypothesize that the negative relationship between GVCs’ investments and follow-on PVCs’ investments will be weakened when the GVC is less complied with the state logic by taking the form of LP and delegating the investment decisions to professional fund managers. In contrast, the negative relationship will be strengthened when the follow-on PVC holds a superior status in the VC industry which reinforces its professional logic. The results based on a sample of 2,680 VC investment deals rendered strong support to our hypotheses. Our study adds to the literature by providing a nuanced perspective of logic tensions to explain why public direct intervention in entrepreneurial finance may impede follow-on investments from private sectors.