Venture Capital and the Financial Performance of Startups in Emerging Economies: Quasi-Experimental Evidence from Morocco

Abstract - This study examines the causal effect of venture capital (VC) financing on the financial performance of Moroccan startups, addressing a notable gap in the literature on entrepreneurial finance in African emerging economies. Using a hand-collected panel of 62 startups (27 VC-backed and 35 non-backed) observed over four periods around the investment year (248 firm-period observations), we estimate difference-in-differences (DiD) models with firm and time fixed effects, complemented by propensity score matching as a robustness check. Financial performance is captured through three complementary indicators: return on assets (ROA), revenue growth, and net margin. The results reveal a sharp contrast across performance dimensions. VC financing exerts a positive and statistically significant effect on revenue growth, with the effect building progressively over the post-investment period. In contrast, no significant effect is detected on profitability, whether measured by ROA or net margin. These findings are consistent with a growth-before-profit logic and align with the mixed evidence on VC and profitability documented in developed markets. The study contributes to the scarce empirical literature on VC effects in African emerging economies and underscores the importance of distinguishing growth dimensions from profitability dimensions when assessing the impact of entrepreneurial finance.