Venture Capital Backing and Political Connections of Newly Public Firms

This paper examines the relationship between venture capital backing of newly public firms in the U.S. and the political connections established by these firms in the first ten years after going public. I find that venture capital-backed firms are 1.5 times more likely to make campaign contributions to politicians. This pattern holds for contributions made by any employee of the firm, made solely by the CEO, and made by any executive of the firms. On average, the amount of corporate contributions made by venture-backed firms is 76% higher than those made by nonventure-backed firms. This effect is mainly driven by the first five years following IPO. In the sixth to tenth years after IPO, venture and nonventure-backed firms contribute equally to politicians campaign finances. I also find that politicians are more likely to own shares of venture-backed IPO firms, and the amount of ownership of venture-backed firms is on average 13% greater than for nonventure-backed firms. This pattern holds whether politicians’ direct or total (both direct and indirect) shareholdings are considered. Unlike the campaign contributions pattern, politicians’ ownership pattern is mainly driven by the sixth to tenth years after IPO. In the first five years after IPO, there are no differences in politicians’ ownership of venture and nonventure-backed firms. The results in this paper suggest that venture capital backed firms seek and achieve stronger political connections after going public than nonventure-backed firms.