THREE ESSAYS ON PRIVATE CAPITAL

Abstract

This dissertation examines the allocation, regulation, and performance of private capital through three essays focused on early-stage and growing firms. Collectively, these studies investigate how institutional rules, investment strategies, and investor characteristics shape access to capital, firm outcomes, and the broader functioning of private markets.The first essay studies the effects of the Securities and Exchange Commission’s accredited investor reform on angel investing and entrepreneurial finance. Exploiting this reform as a plausibly exogenous regulatory shock, the analysis shows that expanding investor eligibility produces heterogeneous effects across industries and geographies, driven by pre-existing concentrations of financially sophisticated individuals. The study further documents a substitution effect between angel financing and traditional lending channels such as SBA loans and home-equity-based borrowing, indicating that changes in capital market regulation may shift financing demand across alternative sources. At the firm level, increased participation by newly accredited investors is associated with faster fundraising cycles, improved short-term survival outcomes, and higher follow-on financing likelihood. Moreover, newly eligible investors exhibit distinct investment behaviors, characterized by greater industry specialization, increased reliance on syndication, and a lower likelihood of assuming lead investor roles. These findings have implications for policy debates concerning investor protection, market access, and the financing of new firms. The second essay examines growth equity as a distinct segment of private capital, positioned between venture capital and buyout investing. Using transaction-level data, we analyze the types of firms that attract growth equity, the post-investment evolution of their capital structures, and their subsequent operating performance. The findings indicate that growth equity targets exhibit characteristics that differ systematically from both venture-backed and buyout-backed firms, and that growth equity investments are associated with measurable changes in growth, leverage, and insolvency risk. This study aims to clarify the role of growth equity within the private capital ecosystem and provides new evidence on how this form of financing affects firm performance. The third essay examines the role of geographic proximity in venture capital investing and how exogenous disruptions - specifically the COVID-19 pandemic - reshape investment strategy, monitoring, and value creation. The results indicate that in response to greater distance and reduced face to face interaction, investors adjust deal structure by syndicating more frequently, reducing deal size and duration, and taking fewer board seats. These patterns suggest that venture capitalists adapted to a more remote financing environment by altering governance intensity and risk sharing, with important implications for the role of geographic proximity in entrepreneurial finance.