Venture Capital Crossover Investing

VC investment in the same portfolio company through different funds of the lead VC firm, known as crossover investing, provides a fertile ground for conflicts of interest and is often explicitly discouraged in the industry. Using a sample of US based VC firms and their startup investments between 1970 to 2018, we show crossover investments are prevalent in VC investments. We study the possible causes and consequences of crossover investments and investigate the two areas of potential conflicts of interest in such investments - rescue financing through the crossover VC fund and benefit transfer from the lead fund to the crossover fund. We find some evidence of rescue financing through crossover investing, but such rescuing effort is not due to a simple transfer of better performance of the rescuing fund to the lead fund. While the rescuing effort may harm the investors of the rescuing funds, it could benefit the portfolio company and other investors. We find no evidence of benefit transfer from the lead VC to the crossover fund through crossover investing.