Most research on venture capital (VC) focuses on VCs’ value-add to their portfolio companies. We explore VCs’ broader value-add on the companies they do not fund, specifically as a by-product of their due diligence. We use novel data from a seed Fund that assigns applicants to due diligence based on the scores of quasi-randomly assigned reviewers. We find that assignment to due diligence leads to higher growth, but also increased closure, even among applicants rejected for investment. The results suggest that VC due diligence helps entrepreneurs reduce their information frictions, possibly by enabling entrepreneurs to learn about their businesses.

We study the portfolio problem of an investor (LP) that invests in stocks, bonds, and private equity (PE) funds. The LP repeatedly commits capital to PE funds. This capital is only gradually contributed and eventually distributed back to the LP, requiring the LP to hold a liquidity buffer for its uncalled commitments. Despite being riskier, PE investments are not monotonically declining in risk aversion. Instead, there are two qualitatively different investment strategies with intuitive heuristics. We introduce a secondary market for PE partnership interests to study optimal trading in this market and implications for the LP’s optimal investments.

Recently, new firm formations have become more geographically dispersed with greater regional industry diversity. Using detailed early-stage firm information from Crunchbase, we show that such a diminishing industrial agglomeration trend for young firms is driven by angel financing. This trend is tied to angel investors' unique portfolio selection of startups that diverges from venture capital's approach. Specifically, angels who are exceedingly intolerant of geographic distance prefer to invest in more distinctive firms industry-wise, while venture capital investors make industry-concentrated investments with relatively greater geographic flexibility. We also show that angel investors' portfolio selection of disparate startups enhances funded firms' performance and plays an important economic role in forming the regional entrepreneurial ecosystem.