Busy Venture Capitalists and Investment Performance

Abstract This paper studies the impact of limited attention on investment decisions by venture capitalists (VCs). I find that startups funded by VCs during VCs’ IPO engagements tend to underperform: These startups are 9% less likely to go public or become acquired and have lower exit multiples. The effects of VCs’ busyness cluster around the active phase of the IPO engagement and are more pronounced in cases of higher workload intensity or higher information asymmetry. Overall, this performance gap induced by attention constraints provides new evidence on VCs’ ability to identify investment opportunities at the initial screening stage.