Too much of a good thing? Venture capital chase and firm innovation

Venture capital (VC) is a vital source of financing for firms to support their growth and innovation. In China, however, VC tends to concentrate disproportionately and repeatedly on a few high-profile firms, through multiple rounds, large funding amounts, and many participating investors. The impact of this intense VC chase, especially on firm innovation, has received little attention in the existing literature. Based on data of companies listed on the Growth Enterprise Market from 2010 to 2024, with observation windows spanning three years before and after each firm's IPO, this study explores the relationship between VC chase and innovation performance of invested firms. The empirical results reveal an inverted U-shaped relationship: while a moderate level of VC chase is positively associated with firm innovation, excessive chase is negatively associated with it. Furthermore, this study analyzes the boundary conditions of this relationship and finds that the inverted U-shaped relationship is more pronounced in firms with lower R&D intensity or greater technological distance from industry leaders. This study enriches the understanding of how VC influences firm innovation by conceptualizing VC chase as a dynamic, multidimensional pattern of investment and interpreting its effects through a temporal pacing and innovation rhythm perspective, and provides theoretical insights for policymakers and investment institutions to establish a well-developed capital market and efficient investment mechanisms.