Venture capitalists who work together increase the success of ventures – up to a point
Venture capital firms with a track record of working together by investing in the same venture are more likely to produce a successful venture, but working together repeatedly will eventually have a negative impact, new research from the UCL School of Management finds.
The research, published in the Strategic Entrepreneurship Journal, involved the analysis of 4,550 U.S. entrepreneurial ventures receiving investments from collaborating venture capitalists from 1980 to 2017.
Professor Joost Rietveld and co-authors from Europe and Australasia found that venture capital firms working together on syndicated investments can reduce risks like investors behaving selfishly or sitting back and letting a colleague do all the work, but continuing to collaborate again and again brings its own set of risks including relying too much on trust.
The benefits of reducing these risks outweighed the costs of other risks increasing, but only up to a point. After this peak, the costs outweighed the benefits and ventures were less likely to succeed.
Moreover, there are two factors involved in shaping the dynamics of this relationship: age of the venture and geographical spread.
“The positive and negative effects of investing together were both increased in younger ventures compared to older ventures. This means investing in older ventures may be a safer investment, but younger ventures can have increased benefits as well as greater potential risk,” says Rietveld.
“More geographically spread syndicates also increased the effects of having worked together before on venture success, both positive and negative. Despite this, syndicates that were closer in their location caused the success of working together repeatedly to peak sooner and decline faster. Being closer together showed benefits after less collaboration but also led to drawbacks sooner.”
There has been much discussion over whether venture capitalists working together on investments make ventures more or less likely to succeed. This research suggests that collaborating with the same partners over and over again can reduce certain risks. However, this leads to an increase in other risks. Therefore, these collaborations should not be repeated indefinitely as continuing to work together will increase the likelihood of negative outcomes. Including venture failure.
Venture capitalists who work together increase the success of ventures – up to a point
Venture capitalists who work together increase the success of ventures – up to a point Venture capital firms with a track record of working together by investing in the same venture are more likely to produce a successful venture, but working together repeatedly will eventually have a negative impact, new research from the UCL School […]
Sign up to our quarterly newsletter to receive the latest and most relevant updates, interviews and opinions from finance’s leading lights.
Subscribe
View the latest issue of the Wealth & Finance digital magazine which features business profiles of leading industry insiders who are thriving in the finance and investment sector.
See Latest Issues
ETF Securities, one of the world’s leading, independent providers of Exchange Traded Products (ETPs),believes the US Federal Reserve (Fed) has made a policy mistake. After raising rates for the first time in nine years, the Fed has held back from further hikes in 2016, bowing to market tantrums.
First, it was the traditional bricks and mortar high street bank to fall out of favour with customers, then physical cash itself – now, time could be up for physical bank cards as well. The way we bank and engage with finance is becoming increasingly mobile-centric – especially on a day-to-day basis.
Growing a business in the current economic climate is a challenge. With rising costs slashing profit margins and prohibiting growth, external investment has become almost a necessity for small and medium-sized enterprises (SMEs) to expand.
Hargreaves Lansdown is broadening its share research as part of an expansion of its stockbroking service.
Venture capital funding for the Life Sciences sector, which includes Biotechnology and Medical Devices, increased 15% in value during the first quarter of 2014, compared to first quarter of 2013, according to a new PwC US report.
Rexel, a global leader in the professional distribution of products and services for the energy world, announces the launch of a new employee share purchase plan, entitled Opportunity16, through which its employees will have the opportunity to acquire shares in the company by participating in a capital increase under preferential conditions.
The time of year is almost upon us where millions will have to complete their self-assessment tax return. Whether that’s as a sole trader, a freelancer, a contractor or running your own businesses, anyone who works for themselves will have to complete their forms before the annual January 31 deadline. For many, it can seem […]
The UK government has recently implemented a series of changes to the National Insurance system, significantly impacting employees across the country.
Deutsche Bank has announced two appointments within its Corporate Finance group in North America.
As a business, keeping tabs on your expenses and ensuring you're getting the best value for your money is important. Knowing how much business energy you're paying for is essential. Not only will this help you stay accountable for your expenses, but it can also help you make more informed decisions about where to cut costs. Did you know that your business could be paying too much VAT on energy? In this blog post, we'll look at how vat is applied to energy and how you can ensure you're getting the best deal.
