I am currently writing my dissertation in the field of Venture Capital and Entrepreneurship and got stuck with a robustness check (Heckman approach) and an error in stata that prevents me from proceeding. I read a lot of forum entries but none of them really addressed my problem:
1. Background information:
• There has been research on investor types such as Venture Capital Firms (VC), Corporate Venture Capital Firms (CVC) and Business Angels (BA) and that those investors add value to startups other than there financial investment e.g. access to network, professionalisation, expertise, experience etc;
• Since start ups go through a lifecycle, divided in 3 stages (Seed, Expansion and Later Stage), I was wondering whether certain investor types (VC, CVC or BA) is better at certain stages.
• Therefore my three hypothesis I like to test:
◦ Hypothesis 1. A significant investment of a Business Angel in the seeding stage increases the likelihood of survival for start-ups.
◦ Hypothesis 2. A significant investment of a Corporate Venture Capital firm in the second stage increases the likelihood of survival for start-ups.
◦ Hypothesis 3. A significant investment of a Venture Capital firm in the third stage increase the likelihood of survival for start-ups.
• Start-Up survival can be measured by looking at the binary variable: success (company status was active, acquired, went IPO) and failure (company status was defunct, bankruptcy)
• Other variables are defined in the attached excel data sets that are related to start-up characteristics (size, age, industry) and investor characteristics (size, age, type)
2. Methodology employed:
• Probit regression is used, since the dependent variable will be success or failure (1 or 0);
• Independent variables: investor type (dummies for BA, VC and CVC), venture characteristics (size, age, industry), investor characteristics (size, age, type) and time (date of investment)
3. Selection bias:
• VC, BA or CVC investor types can increase the likelihood of survival due to value adding activities or it could be that VCs just screen the market better and invest only in more successful startups (endogeneity, selection bias)
• How I want to employ Heckman selection approach:
◦ Outcome equation: dependent variable = success of startup (binary) and independent variables (BA, VC or CVC dummies; and control variables)
◦ Selection equation: dependent variable = BA dummy (binary) and independent variables (control such as venture characteristics and investor characteristics)
4. Stata command used and error type:
• Stata command: heckman performance_outstanding_exit BA_dummy time2_dummy1 time2_dummy2 time2_dummy3 time2_dummy4 time2_dummy5 time2_dummy6 time2_dummy7 time2_dummy8 lninvage lninvsize lncompage, select(BA_dummy = VC_dummy CVC_dummy lninvage lninvsize lncompage time2_dummy1 time2_dummy2 time2_dummy3 time2_dummy4 time2_dummy5 time2_dummy6 time2_dummy7 time2_dummy8) twostep
• Error: note: BA_dummy omitted because of collinearity
• This error also occurs when I use VC dummy or CVC dummy instead of BA_dummy; If I also run a probit regression with all those variables of the outcome equation, including BA-dummy, there is no warning of collinearity
My guess is that the collinearity is there because stata does something with the outcome and selection equation. But my knowledge about probit, Heckman etc is quite limited. In the end of my BSc my statistic knowledge is quite limited and I hope to get some help from you guys who have expertise in the field.
Thank you very much in advance,
Max
- Screenshot of Stata
- Screen Shot 2015-08-01 at 09.55.45.png (77.65 KiB) 3044-mal betrachtet
- Screenshot part2
- Screen Shot 2015-08-01 at 09.56.01.png (88.58 KiB) 3043-mal betrachtet
