The impact of venture capital on Chinese SMEs' sustainable development: a focus on early-stage and professional characteristics

The study examines how venture capital (VC) influences the long-term sustainable development of Chinese SMEs, focusing on two characteristics: timing of investment (early-stage entry) and the breadth of VC expertise (professionalism versus widespread investment scope). SMEs are central to employment, innovation, and high-quality economic growth in China but face financing constraints due to high risk, long return periods, and limited governance mechanisms. Venture capital, with staged contracts and value-added services, may address these gaps. The research employs survival analysis to capture long-term outcomes—specifically post-IPO survival time and status—given the unique features of China’s listing and delisting systems where delisting often indicates severe performance issues. The study aims to provide empirical evidence on whether early VC involvement and VC specialization affect firms’ post-IPO survival, informing both corporate choices and policy.

Prior work shows VC provides capital and value-added services and can enhance R&D, innovation, commercialization, and globalization; it also improves governance, reduces financial distress, and aids IPO processes. Yet, findings on long-term effects are mixed. Some studies find VC characteristics (e.g., early involvement, coordination) predict post-IPO success and long-run market performance via innovation, while others argue VCs prioritize short-term IPO gains, sell post-IPO, and may be associated with weaker long-run performance. VC reputation tends to matter more in the short term than the long term. The literature highlights the need for appropriate long-term outcome measures and dynamic methods; survival analysis is proposed to capture sustained post-listing viability rather than point-in-time market performance.

Design: A survival analysis framework is used to study long-term post-IPO outcomes of VC-backed Chinese firms listed between 2002 and 2022. Both semiparametric (Cox proportional hazards) and nonparametric (Kaplan–Meier and life table) methods are applied to handle censoring and avoid distributional assumptions. Data: Venture capital events were extracted from Wind Data Service (01/01/2002–12/31/2022) and merged with records of Chinese-listed companies to identify VC-backed listed firms. The final sample comprises 1,372 companies, of which 116 experienced delisting/merger events and 1,256 remained active as of 12/31/2022 (censored at that date). Outcomes (dependent variables): - Listing survival time: months from IPO to delisting/merger or censoring date (12/31/2022). - Living state: market status (0 = merged or delisted; 1 = active). Key independent variables: - Professionalism: 1 if a VC firm focuses on ≤5 industries; 0 if widespread (>5 industries). - Early stage: 1 if VC invested before or during Round A; 0 if after Round A. Control variables: - Company age at listing (months from business license to IPO) capturing maturity. - IPO issue scale (proceeds/size of issuance). - Lead underwriter reputation (0 = low, 1 = medium, 2 = high) proxied by total assets ranking. Industry performance (industry P/E) was initially considered but excluded due to overlap with company age at listing and correlation patterns. Statistical approach: - Cox proportional hazards regression to estimate effects of VC characteristics and controls on survival, accommodating censoring and avoiding distributional assumptions on survival times. - Kaplan–Meier estimator to compare univariate survival functions across groups (professional vs. widespread; early vs. nonearly), with log-rank tests. - Life table method to corroborate survival rate patterns over intervals. Rationale: Survival analysis jointly models duration and event occurrence and is suited to contexts with censoring and categorical covariates, in contrast to general regression methods that require stronger assumptions.

Sample profile: 1,372 VC-backed listed firms; 116 delisted/merged events (8.4%), 1,256 censored (91.5%). Distribution: professional VC 389 firms (28.4%, average listing duration 116.2 months) vs. widespread VC 983 (71.6%, average 108.7 months). Early-stage VC backing in 781 firms (56.9%, average 112.2 months) vs. nonearly-stage 591 (43.1%, average 109.0 months). Correlation analyses: - Listing survival time correlates positively with professionalism (simple correlation significant) and positively but insignificantly with early stage; after controlling for company age at listing, IPO scale, and underwriter reputation, partial correlations show early stage significantly and positively associated with survival time, while professionalism is not significant. Cox PH—Professionalism: - Overall model significant (P=0.00). Professionalism coefficient = −0.13, P=0.06 (not significant). Conclusion: VC investment scope (specialization vs. widespread) has no significant short-term impact on sustainability. Kaplan–Meier and life table—Professionalism: - Log-rank P=0.06 (>0.05) and life table P=0.08 (>0.05): no significant difference in survival functions. Descriptively, specialized VCs show less stable survival over time and an inhibitory effect emerging roughly four years post-IPO. Cox PH—Early stage: - Overall model significant (P=0.00). Early-stage coefficient = 0.15, P=0.01, indicating a significant effect consistent with improved sustainable development in the paper’s interpretation. Controls: company age at listing negatively associated with survival (coef ≈ −0.01, P=0.00); IPO issue scale and underwriter reputation positively associated (P=0.00). Kaplan–Meier and life table—Early stage: - Early-stage VC-backed firms have consistently higher survival functions; differences widen over time. Log-rank P=0.00; life table P=0.01. Synthesis: - Early VC entry significantly promotes long-term sustainability (longer post-IPO survival), with benefits compounding over time via funding, governance, and non-capital value-added services (networks, management, market information). VC professionalism shows no significant short-term effect and exhibits a long-run inhibitory effect (circa four years post-listing), suggesting risks of excessive professional/technical intervention.

The findings address the central question of how VC timing and specialization affect SMEs’ long-term post-IPO viability. Early involvement enables VCs to institute governance, financial controls, and provide value-added services earlier, building organizational capabilities and networks that persist even after VC exit—supporting sustained survival. This counters concerns that VC exits harm long-run outcomes: any negative effect of post-IPO sell-downs appears short-lived relative to accumulated “soft power.” Conversely, specialization does not confer clear survival advantages and may hinder long-run development as specialized VCs risk over-involvement in technical decisions, limiting flexibility and cross-industry resource access needed for scaling, integration across value chains, and strategic transformation. The approximately four-year post-IPO point emerges as a critical juncture where specialized VC influence may become counterproductive. These insights suggest optimal VC value comes from early, governance- and capability-oriented engagement while avoiding excessive technical micromanagement. For SMEs, aligning with VCs whose resource scope matches evolving strategic needs is crucial; for policymakers, facilitating earlier VC engagement and reducing information asymmetries can enhance sustainable enterprise development.

Applying survival analysis to a large sample of Chinese VC-backed listed firms (2002–2022), the study shows: (1) early-stage VC entry significantly promotes sustainable development, reflected in longer post-IPO survival, with advantages that grow over time; (2) VC professionalism (specialization) has no significant short-term effect and can inhibit long-term performance roughly four years after listing, implying that excessive professional intervention may impede adaptability. The work contributes methodologically by using survival status and duration as long-term outcomes and combining Cox PH with Kaplan–Meier and life table validation. Practical implications: VCs should emphasize early engagement and focus on governance, management, and network-building, while avoiding overreach in technical decisions. SMEs should seek early, well-matched VC partners with resource scopes aligned to their development trajectories. Policymakers can encourage earlier VC participation and build mechanisms to reduce information asymmetry. Future research can extend cross-country comparisons, incorporate unlisted VC-backed firms, and refine definitions of long-term horizons with improved data accuracy.

The sample is limited to Chinese enterprises, primarily domestic listings with some overseas listings, constraining cross-country generalizability. The analysis focuses on listed firms; unlisted VC-backed companies are excluded, potentially omitting important survival dynamics pre-IPO or without IPOs. Data accuracy and completeness depend on Wind database records and matching processes. The operationalization of “long-term” (censoring at 12/31/2022) may omit later outcomes; alternative horizons could be explored. Industry performance was excluded due to collinearity considerations, which may omit some sectoral nuance.