Redeploying the Jockeys: The Intermediary Role of Venture Capital in Entrepreneurial Labor Markets
Abstract
This paper explores how venture capitalists (VCs) add value by examining their role as labor market intermediaries. Using novel data, I show that VCs create internal labor markets (ILMs) to facilitate entrepreneurial mobility across their portfolio firms. Survey evidence suggests that VCs leverage private information about founders’ abilities to strategically match talent to portfolio firms, creating value for the recipient companies. Consistent with this mechanism of asymmetric learning, I find that (a) former VC partners continue to influence founder mobility, (b) ILM intensity positively predicts VC fund returns, and (c) the ILM effect is stronger when information asymmetry is greater.
This paper was accepted by Lin William Cong, finance.
Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01626.
