Fired Up or Burned Down: Wildfires and VC Investment

Using granular data on Californian wildfires and smoke, we examine the behavior of venture capitalists (VCs) and VC-backed startups after such events. We find that VCs are more likely to invest in ESG-oriented startups following wildfires, but decrease their average investment amount. We differentiate the effects of wildfires from smoke, uncovering the underlying mechanism of salience bias. For VC-backed startups, we observe an increase in green patent production following wildfires, indicating a shift towards more environmentally friendly innovations. While wildfires do not affect startups’ near-future financing opportunities, they pose detrimental effects if encountered during the startups’ nascent stage.