The paper tests different theories of how diversification by Venture Capital (VC) firms affects fund performance. The Financial Intermediation and the Resource-based Theory suggest that lower financial risk associated with diversification implies a lower return. However, the assumptions of these theories are questionable in the context of venture capital. We test their validity using data on VC portfolio diversification by industry and country using an original dataset of 649 VC funds originating in the United Kingdom over the period 1981–2000. Results show that higher diversification by industry does indeed lower VC fund success rates. Diversification by geographical region, on the contrary, increases returns.
Cressy R., Malipiero A., Munari F. (2014). Does VC fund diversification pay-off? An empirical investigation of the effects of VC portfolio diversification of fund performance. INTERNATIONAL ENTREPRENEURSHIP AND MANAGEMENT JOURNAL, 10(1), 139-163 [10.1007/s11365-011-0218-8].
Does VC fund diversification pay-off? An empirical investigation of the effects of VC portfolio diversification of fund performance
MALIPIERO, ALESSANDRO;MUNARI, FEDERICO
2014
Abstract
The paper tests different theories of how diversification by Venture Capital (VC) firms affects fund performance. The Financial Intermediation and the Resource-based Theory suggest that lower financial risk associated with diversification implies a lower return. However, the assumptions of these theories are questionable in the context of venture capital. We test their validity using data on VC portfolio diversification by industry and country using an original dataset of 649 VC funds originating in the United Kingdom over the period 1981–2000. Results show that higher diversification by industry does indeed lower VC fund success rates. Diversification by geographical region, on the contrary, increases returns.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
