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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 use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional IPO among a VC firm's first ten investments predicts as much as an 8% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times to invest; but early success does lead to investing in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.

Keywords: venture capital; performance; monitoring; selection (search for similar items in EconPapers)
JEL-codes: G24 M13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-sea
Date: 2017-01, Revised 2018-07
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