Political Polarization and Venture Capital Investment

Political homogeneity preferences can significantly impact venture capital (VC) and startup ecosystems, creating challenges and opportunities associated with exacerbated uncertainty and behavioral biases. On the one hand, political homogeneity preferences could worsen VC markets due to problems with cooperation and information sharing. On the other hand, VCs are very sophisticated financial intermediaries, and the standard negative political polarization outcomes in other contexts might not necessarily apply to VCs. U.S. data from 1990-2021 indicate that political homogeneity preferences shrink the number of syndicated investors, lengthen the time between staged investment rounds, reduce the total number of staged rounds, lower the likelihood of IPO and acquisition exit outcomes, and reduce IPO valuations.