Should business angels diversify their investment portfolios to achieve higher performance? The role of knowledge access through co-investment networks

Torben Antretter, Charlotta Sirén, Dietmar Grichnik and Joakim Wincent

Journal of Business Venturing, 2020, vol. 35, issue 5

Abstract: This paper investigates the performance effects of business angel portfolio industry diversification. Using a unique bi-annual panel dataset of 142 members of a professional angel investment platform and their portfolio returns between 2013 and 2017, we consider the costs and benefits of diversifying investments into various industries. Drawing upon theoretical arguments about distant search, we theorize and find a nonlinear (S-shaped) relationship between portfolio industry diversification and performance. Further, we pay specific attention to a proposed overdiversification effect that takes place at high levels of portfolio industry diversification and show that this effect is moderated by individuals' access to industry knowledge through their co-investment networks. For business angels who have a central position within a diverse network of industry specialists, the overdiversification effect is less pronounced.

Keywords: Business angels; Distant search; Networks; Portfolio diversification; Syndication (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbvent:v:35:y:2020:i:5:s088390261830781x

DOI: 10.1016/j.jbusvent.2020.106043

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