Shadow capital in venture financing: Selection, valuation, and exit dynamic

Non -venture capital private equity funds (PEs) have become increasingly interested in investing in entrepreneurial firms. We investigate how PEs invest and perform in comparison to VCs, and the implication of PEs' participation on ventures. We show that PEs are more likely to invest in ventures after typical investment period and when there was substantial capital overhang. PEs prefer the expansion and late -stage ventures. Investment size and valuation are larger/higher with PEs' participation. We further find that IPOs and secondary buyout are more prevalent among ventures with PE investments. PEs' participation also allows ventures more time to get ready for exit.