- Apr 10, 2026
- Posted by:
- Category: Abstract of 10th-icmbf
Abstract Book of the 10th International Conference on Advanced Research in Management, Business and Finance
Year: 2026
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Matching Frictions and Equilibrium Dispersion in Venture Capital Markets: Evidence from Large-Scale Compatibility Rankings
Ruhan Khanna, Adam Tashman
ABSTRACT:
This paper studies venture capital as a financial matching market in which startups and investors search for partners under limited information, network constraints, and bargaining frictions. Using Crunchbase data on more than 62,000 startups, tens of thousands of investors, and over 150,000 funding events, I train a LightGBM LambdaRank model on approximately 900,000 startup–investor pairs to estimate revealed compatibility rankings for each startup. Out of sample, the model ranks the realized investor within the top 10 predicted matches in 60.3% of held-out deals, and the median realized investor rank is 6. I then define Mismatch Distance (MD) as the rank of the realized investor in the model ordering and use it as a reduced-form measure of matching frictions in venture capital allocation. The distribution of MD is highly skewed: many deals occur near the top of the ranking, but a substantial right tail remains, indicating meaningful equilibrium dispersion in realized startup–investor matches. I further document systematic differences in mismatch across geography, funding stage, and founder identity, and summarize these patterns using reduced-form regressions. The results suggest that venture capital markets are neither random nor frictionless. Compatibility matters for investor choice but realized financing outcomes are also shaped by search frictions, network access, and bargaining. More broadly, the paper offers a scalable empirical framework for studying frictions in entrepreneurial finance and financial intermediation.
Keywords: Entrepreneurial Finance; Financial Intermediation; Investor Search; Market Frictions; Startup Financing