Persistence Pays: Evidence from Investment Style Dynamics in the Venture Capital Industry
59 Pages Posted: 29 Jun 2013
Date Written: June 20, 2013
We examine style drift in venture capital investing using 344,491 VC firm-financing rounds between 1980 and 2010. We locate each VC financing round in one of twenty styles, and develop a measure of a change in a VC's styles ("style drift") that is time consistent and independent of firm size. VC firms that exhibit style persistence outperform those that drift. VCs in the early years of their lifecycle exhibit greater style drift. Style drift hurts performance for seasoned VCs and for VCs that drift in a correlated (herd) fashion with other VC firms. We find evidence for economies of style persistence.
Keywords: Venture capital, style persistence, style drift
JEL Classification: G20, G24
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