Time Tells: Unraveling the Temporal and Risk Dynamics of Venture Capitalists

Access to funds is critical for new ventures, yet many struggle to secure financing. Why are some investors more likely than others to finance new ventures? We address this question by studying the influence of time and risk preferences on venture capital's investment decisions. Using data from a large-scale incentivized survey of venture capitalists in Europe, our findings reveal that patient venture capitalists favor early-stage firms, whereas risk-averse venture capitalists invest in more mature ones. Moreover, we show that risk and time preferences provide different pathways to success: risk-averse investors are more likely to exit through a trade sale, whereas patient investors exit more often through an initial public offering (IPO). The most favorable path to an IPO occurs when investors demonstrate both patience and a willingness to take risks, highlighting an interplay between risk and time preferences.