Getting Tired of Your Friends: The Dynamics of Venture Capital Relationships
41 Pages Posted: 18 Sep 2019 Last revised: 17 Oct 2021
Date Written: September 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.
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