Despite recent progress in examining investors' ESG preferences and ESG investment strategies, little is known about firms' responses to the adoption of green funding in the private market. This paper examines how firms decide between ESG-focused and profit-driven investors for collaboration in their fundraising efforts. We focus on the startup-venture capital (VC) context by implementing complementary real-stakes placement experiments with actual US startup founders and linking their experimental behavior to their fundraising outcomes. In the first experiment, startup founders evaluate multiple randomly generated VC profiles to receive contact information for real matched investors. The second experiment introduces a novel payment game, designed to elicit the ESG preferences of startup founders within the same field setting. Our findings indicate that (i) founders tend to avoid collaborating with VCs targeting environmental impact due to financial reasons, such as profitability and compatibility concerns, especially when dealing with lower-quality VCs; (ii) ESG-based matching preferences exist, with ESG startups favoring ESG VCs and profit-driven startups preferring profit-driven VCs; (iii) the payment game, together with a random utility model, shows that founders have positive preferences towards ESG investors; and (iv) there are significant heterogeneous effects based on founders' political affiliations, the gender of the investor, the size of the startup, and the industry background.
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