How potential knowledge spillovers between venture capitalists' entrepreneurial projects affect the specialization and diversification of VC funds when VC effort has value
Hyoung-Goo Kang, Richard M. Burton, Will Mitchell
Strategic Entrepreneurship Journal · 2011 · Volume 5 · Issue 3
Abstract
Research concerning diversification and specialization of venture capital funds typically does not consider how a VC's effort might influence performance of different portfolios. We develop a model that analyzes VC effort when there is the potential for cross-sectional and/or serial knowledge spillover among projects. The model generates two implications concerning VC effort and performance. First, VC post-investment effort is a nonmonotonic function of performance shocks, especially for diversified VCs. Second, greater cross-sectional and serial knowledge spillovers improve the performance of specialization relative to diversification, and shape how the number of decision stages in a project affects portfolio choice. Copyright © 2011 Strategic Management Society.
Keywords
venture capital, diversification, specialization, VC post-investment effort, knowledge spillover
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