Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1500: Financing J-Curves in Venture Capital

Thomas Hellmann (), Alexander Montag () and Joacim Tåg ()
Additional contact information
Thomas Hellmann: Sa¨ıd Business School, Oxford University and NBER
Alexander Montag: Kelley School of Business, Indiana University, and, Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Joacim Tåg: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

Abstract: Startups face a trade-off between short-term profitability and long-term growth. Their cash flows are said to follow a so-called J-curve. The shape of the curve depends on investors' financing capacity: their ability to sustain prolonged periods of negative cash flow. US venture capitalists are often believed to have greater financing capacity. We examine a large Swedish dataset with detailed cash flow information. Swedish startups backed by US venture capitalists experience deeper J-curves, with larger short-term losses and higher long-term sales, relative to those backed by non-US venture capitalists. These results are consistent with US venture capitalists having greater financing capacity: they can provide more funding directly and have better access to later-stage investors.

Keywords: Venture Capital; Startup Financing; J-Curves; Follow-on Funding; Entrepreneurial Finance

JEL-codes: G24; G32; L26; O16; O31

Language: English

95 pages, First version: August 27, 2024. Revised: March 31, 2026.

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