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The Persistent Effect of Initial Success: Evidence from Venture Capital

Ramana Nanda (), Sampsa Samila () and Olav Sorenson
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Sampsa Samila: National University of Singapore

No 17-065, Harvard Business School Working Papers from Harvard Business School

Abstract: We used data on individual investments in the portfolios of venture capital firms to study persistence in their performance. Each additional IPO among a VC's first five investments predicted a 13% higher IPO rate for its subsequent 50 investments. Roughly half of this performance persistence stemmed from investment "styles"?investing in particular regions and industries. We found no evidence of performance persistence stemming from a differential ability to select or govern portfolio companies. Rather, our results suggest that early success in venture investing yields better deal ow in subsequent investments, thereby perpetuating differences in the outcomes of initial investments.

Keywords: venture capital; performance; monitoring; selection (search for similar items in EconPapers)
JEL-codes: G24 M13 (search for similar items in EconPapers)
Date: 2017-01
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