The Fast and the Curious: VC Drift

Amit Bubna (), Sanjiv Das () and Paul Hanouna ()
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Amit Bubna: Independent
Paul Hanouna: Villanova University

Journal of Financial Services Research, 2020, vol. 57, issue 1, No 4, 69-113

Abstract: Abstract We develop a measure of a VC firm’s investment style and its change over time (drift). While drift can be beneficial for responding to new market conditions, it reduces the ability to develop style expertise. We document evidence of drift among VCs and find that it is more prevalent among VCs who are less experienced and face pressure to invest their funds. We also find a negative relation between drift and performance, with stronger effects for VCs who herd and are seasoned. Overall, our results are consistent with the hypothesis that drift is detrimental to VC performance.

Keywords: Venture capital; Style persistence; Style drift (search for similar items in EconPapers)
JEL-codes: G20 G24 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10693-018-0302-0

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