This empirical study investigates the determinants of staged financing in venture capital (VC) investments and assesses its influence on post-investment performance. By employing innovative proxies for monitoring costs and outside opportunities, the study provides compelling empirical evidence supporting the hold-up hypothesis, indicating that VC-staged financing is driven by the severity of external opportunities for entrepreneurs contributing as the first to establish such empirical support. The findings reveal that higher outside opportunities are linked to increased staging, characterized by smaller investments per round, shorter round durations, more financing rounds, and a higher likelihood of additional rounds in the U.S. venture capital market. However, the monitoring hypothesis does not consistently align with the results. Furthermore, this research reconciles conflicting empirical findings in prior literature by highlighting a positive correlation between the number of financing rounds and entrepreneurial success when entrepreneurs face greater external opportunities. Lastly, this study enriches the venture capital and social finance literature by shedding light on the role of social connections in private market investments.

Keywords: Social Networks, Social Connectedness, Venture Capital; Private Equity; Staged Financing; Monitoring; Hold-up; Commitment; Investment Structure; Post-Investment Performance