The Persistent Effect of Initial Success: Evidence from Venture Capital

50 Pages Posted: 6 Aug 2018

See all articles by Ramana Nanda

Ramana Nanda

Harvard University - Entrepreneurial Management Unit

Sampsa Samila

University of Navarra, IESE Business School

Olav Sorenson

Yale School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 2018

Abstract

We use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional IPO among a VC firm's first ten investments predicts as much as an 8% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times to invest; but early success does lead to investing in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.

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Suggested Citation

Nanda, Ramana and Samila, Sampsa and Sorenson, Olav, The Persistent Effect of Initial Success: Evidence from Venture Capital (August 2018). NBER Working Paper No. w24887. Available at SSRN: https://ssrn.com/abstract=3226837

Ramana Nanda (Contact Author)

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

Sampsa Samila

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Olav Sorenson

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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