Venture Capital Investment Strategy and Portfolio Failure Rate: A Longitudinal Study

Posted: 10 Nov 2009

See all articles by Dimo Dimov

Dimo Dimov

University of Bath

Dirk De Clerq

Brock University - Faculty of Business

Date Written: 2006

Abstract

In this study, longitudinal data are used to examine theeffects of venture capital firms' (VCFs) investment strategies on the failurerates in their portfolios. Particular attention is paid to two specificstrategic choices faced by VCFs—the choice to develop specialized expertise andthe choice to invest together with syndicate partners. First, a theoretical framework for VCFs' contribution to new venturesurvival is used to generate two hypotheses, the first of which proposes thatthe development of a special expertise through an investment specializationstrategy decreases the proportion of failures in a VCF's portfolio. The secondhypothesis predicts the effects of management by a syndicate on failurerates. Data on 200 U.S.-based VCFs that have invested in at least 20 portfoliocompanies are used to test the hypotheses. Spanning the years 1990-2001, thedata reveal that VCFs' specialized expertise decreases the relative number offailures in their portfolio. They also suggest that investment syndicatesincrease the chances that portfolio firms will fail. (SAA)

Keywords: VentureXpert dataset, Specialization, Investment syndicates, Venture capital, Venture capital firms, Survival rates, Knowledge production, Investment policies, Firm strategies

Suggested Citation

Dimov, Dimo and De Clercq, Dirk, Venture Capital Investment Strategy and Portfolio Failure Rate: A Longitudinal Study (2006). Entrepreneurship Theory and Practice, Vol. 30, Issue 2, p. 207-223 2006. Available at SSRN: https://ssrn.com/abstract=1503242

Dimo Dimov (Contact Author)

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

HOME PAGE: http://dimodimov.me

Dirk De Clercq

Brock University - Faculty of Business ( email )

St. Catharines, Ontario L2S 3A1
Canada

Register to save articles to
your library

Register

Paper statistics

Abstract Views
652
PlumX Metrics