Exploring the Causal Link between Early Life Experiences and Risk-Taking Behavior: Evidence from Venture Capitalists

Abstract

This master thesis examines the causal relationship between early-life exposure to natural disasters and risk-taking behavior among venture capital investors. Drawing on a comprehensive literature review, we define specific risk-taking measures and analyze a dataset comprising 894 VC investors and their involvement in 1.6 million total deals. Through rigorous statistical analysis, we explore the impact of experiencing natural disasters during one's formative years on VC investors' risk-taking behavior. Our findings reveal a U-shaped relationship, similar to previous studies on CEOs, suggesting that moderate levels of disaster exposure led to increased risk-taking, while extreme levels result in a more cautious approach. Moreover, an extended analysis employing continuous measurements of early-life experiences establishes a causal link between VC investors' exposure to injuries from natural disasters during their early life and their propensity for making late-stage investments. This novel insight is underpinned by robustness tests, control variables, and fixed effects, highlighting that injuries from natural disasters serve as an exogenous shock affecting VC investment timing. Though the degree of statistical significance may differ from existing literature, this thesis contributes to the understanding of financial behavior and sets the stage for future research, especially regarding the uncovered relationship between early-life injuries from natural disasters and late-stage investments. The insights gained from this study have practical implications for VC investors, providing valuable perspectives into their decision-making process, and enhancing our understanding of risk-taking dynamics in the venture capital industry.