Getting Tired of Your Friends: The Dynamics of Venture Capital Relationships
59 Pages Posted: 26 Jul 2019 Last revised: 14 Sep 2019
Date Written: July 1, 2019
Does doing more deals together always strengthen investor relationships? Based on the relationships of the top 50 US venture capital firms, this paper focuses on the strengths of relationships and their dynamic evolution. Empirical estimates indicate that having a deeper relationship leads to fewer, not more future coinvestments. Moreover, deeper relationships lead to lower exit performance, even after controlling for endogeneity. Interestingly, deeper relationships first lead to lower performance, and subsequently lead to a slowdown in the relationship intensity. Relationship effects are more negative for VC firms with less central network positions, and for deals made in “hot” investment markets.
Keywords: Venture Capital; Investment Networks; Investor relationships; Network Dynamics
JEL Classification: G24
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