Abstract

http://ssrn.com/abstract=2036399
 


 



Venture Capitalists’ Decision to Withdraw: The Role of Portfolio Configuration from a Real Options Lens


Yong Li


State University of New York at Buffalo

Tailan Chi


University of Kansas

December 2012

Strategic Management Journal, Forthcoming

Abstract:     
When does a venture capital firm withdraw from an investment project prior to its completion? This study offers a real options view on this decision by examining the contingent effects of portfolio configuration. We explore how project withdrawal can be influenced by two distinct dimensions of portfolio configuration, portfolio focus in a strategic domain and portfolio diversity across multiple domains. The empirical analysis shows that while portfolio focus weakens the negative effect of industry-level uncertainty on a venture capitalist’s propensity to withdraw from a project, portfolio diversity strengthens the effect of uncertainty. This study informs current research on the boundary of real options theory and sheds light on the behavior of venture capitalists in financing entrepreneurship.

Number of Pages in PDF File: 35

Keywords: venture capital, project withdrawal, real options, uncertainty, portfolio configuration

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Date posted: April 9, 2012 ; Last revised: April 28, 2013

Suggested Citation

Li, Yong and Chi, Tailan, Venture Capitalists’ Decision to Withdraw: The Role of Portfolio Configuration from a Real Options Lens (December 2012). Strategic Management Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2036399 or http://dx.doi.org/10.2139/ssrn.2036399

Contact Information

Yong Li (Contact Author)
State University of New York at Buffalo ( email )
326 Jacobs Management Center
Amherst, NY 14260
United States
Tailan Chi
University of Kansas ( email )
1415
Lawrence, KS 66045
United States
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