Are Investors Committees in Private Equity and Venture Capital a Good Idea?

Abstract

We investigate the determinants of success in PEVC with emphasis on the effect of investment committees staffed with limited partners (LP). Such committees could substitute for the ex post referral that creditors give in levered acquisitions when long-term credit is not available. We find that funds with investment committee under perform those without such board. This indicates that investors committees are not a good alternative for creditors’ referral. We also find that the success of investments depends on the characteristics of the funds; how investments are structured; individual characteristics of LPs and general partners (GP); and GPs management style. The results for individual variable are sensitive to how success is measured, suggesting that one should be careful at interpreting results based on a single measure of success.

Keywords: private equity, venture capital, investors committee, investment exit, performance

JEL Classification: G24