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When Do Venture Capital Firms Learn from Their Portfolio Companies?

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  • Dirk De Clercq
  • Harry J. Sapienza

Abstract

In this study, we examine when venture capital firms (VCFs) learn from their portfolio companies (PFCs). Relying primarily on learning and behavioral theories, we develop hypotheses regarding the effects of prior experience, knowledge overlap, trust, and PFC performance on learning by VCFs. We use a combination of primary and secondary data from 298 U.S.–based VCFs to test the hypotheses. Interview data are used to illuminate the results and to guide our discussion of implications.  Many of our results were surprising. For example, we found that the VCF's overall experience is negatively related to VCF learning, and we found that trust in VCF–PFC dyads is also negatively associated with VCF learning. Whereas we expected to observe a curvilinear relationship between knowledge overlap and learning, we found that lower levels of knowledge overlap were associated with greater learning in a linear fashion. Finally, we found that VCFs perceive greater learning to occur in higher–performing PFCs. We discuss the limitations and implications of our findings and also suggest avenues for future research.

Suggested Citation

  • Dirk De Clercq & Harry J. Sapienza, 2005. "When Do Venture Capital Firms Learn from Their Portfolio Companies?," Entrepreneurship Theory and Practice, , vol. 29(4), pages 517-535, July.
    • Handle: RePEc:sae:entthe:v:29:y:2005:i:4:p:517-535
    DOI: 10.1111/j.1540-6520.2005.00096.x
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    6. Jana Schmutzler & Veneta Andonova & Jonathan Perez-Lopez, 2021. "The role of diaspora in opportunity-driven entrepreneurial ecosystems: A mixed-methods study of Balkan economies," International Entrepreneurship and Management Journal, Springer, vol. 17(2), pages 693-729, June.
    7. Woike, Jan K. & Hoffrage, Ulrich & Petty, Jeffrey S., 2015. "Picking profitable investments: The success of equal weighting in simulated venture capitalist decision making," Journal of Business Research, Elsevier, vol. 68(8), pages 1705-1716.
    8. Braunerhjelm, Pontus & Lappi, Emma, 2023. "Employees' entrepreneurial human capital and firm performance," Research Policy, Elsevier, vol. 52(2).
    9. Boso, Nathaniel & Adeleye, Ifedapo & Donbesuur, Francis & Gyensare, Michael, 2019. "Do entrepreneurs always benefit from business failure experience?," Journal of Business Research, Elsevier, vol. 98(C), pages 370-379.
    10. Zhang Pingying, 2014. "Understanding Diversification Strategy in Venture Capital Market," Entrepreneurship Research Journal, De Gruyter, vol. 4(3), pages 1-20, July.
    11. Tavassoli, Sam & Jienwatcharamongkhol, Viroj & Arenius, Pia, 2021. "Colocation of Entrepreneurs and New Firm Survival: Role of New Firm Founder’s Experiential Relatedness to Local Entrepreneurs," Papers in Innovation Studies 2021/13, Lund University, CIRCLE - Centre for Innovation Research.
    12. Basu, Sandip & Phelps, Corey & Kotha, Suresh, 2011. "Towards understanding who makes corporate venture capital investments and why," Journal of Business Venturing, Elsevier, vol. 26(2), pages 153-171, March.
    13. Manuel Kaiser & Elisabeth S. C. Berger, 2021. "Trust in the investor relationship marketing of startups: a systematic literature review and research agenda," Management Review Quarterly, Springer, vol. 71(2), pages 491-517, April.
    14. Rafał Morawczyński, 2020. "Venture Capitalists’ Investment Criteria in Poland: Entrepreneurial Opportunities, Entrepreneurs, and Founding Teams," Administrative Sciences, MDPI, vol. 10(4), pages 1-30, October.
    15. Dmitry Khanin & Raj V. Mahto, 2013. "Do Venture Capitalists Have a Continuation Bias?," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 22(2), pages 203-222, September.
    16. George A Shinkle & Jo-Ann Suchard, 2019. "Innovation in newly public firms: The influence of government grants, venture capital, and private equity," Australian Journal of Management, Australian School of Business, vol. 44(2), pages 248-281, May.
    17. Douglas Cumming & Grant Fleming & Armin Schwienbacher, 2008. "Financial intermediaries, ownership structure and the provision of venture capital to SMEs: evidence from Japan," Small Business Economics, Springer, vol. 31(1), pages 59-92, June.
    18. Sam Tavassoli & Viroj Jienwatcharamongkhol & Pia Arenius, 2023. "Colocation of Entrepreneurs and New Firm Survival: Role of New Firm Founder’s Experiential Relatedness to Local Entrepreneurs," Entrepreneurship Theory and Practice, , vol. 47(4), pages 1421-1459, July.

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