Top-tier Law Firm Expertise and Venture Capital Investments: Global Evidence

Top-tier Law Firm Expertise and Venture Capital Investments: Global Evidence

Douglas Cumming, Giang Nguyen, Anh Viet Pham, Cameron Truong

Series number :

Serial Number: 
934/2023

Date posted :

September 30 2023

Last revised :

October 07 2023
SSRN Share

Keywords

  • Law firms • 
  • venture capital • 
  • deal completion • 
  • Capital Allocation • 
  • transaction valuation

Using a comprehensive sample of global venture capital (VC) deals over the period 2005–2020, we document that VC deals involving top-market-share law firms correlate with a range of auspicious economic outcomes. First, the involvement of top law firms is associated with a substantially reduced probability of failure or cancellation of VC deals.

Second, we document that when VC deals involve top law firms, either on the buy-side or sell-side, prompt venture capitalists (VCs) to allocate greater investment capital to these transactions. Third, top law firms are associated with a higher valuation of portfolio, alongside higher returns generated from the current financing round to subsequent rounds. Finally, portfolio companies that secure investments involving top law firms exhibit a heightened likelihood of successful exits through initial public offerings (IPOs) or mergers and acquisitions (M&A). The associations documented in this study are significant after controlling for selection bias and other pertinent factors such as characteristics of investee, VC entities, and broader macro and legal environments. We interpret that top law firms offer a specialized acumen that facilitates the seamless execution of transactions and contributes to the generation of value within VC investments. The alignment with the objectives of both VCs and investees highlights the critical role of legal advisors’ expertise in shaping the success of VC investments.

Authors

Real name:
Giang Nguyen
Real name:
Cameron Truong
Real name:
Anh Viet Pham