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Should Venture Capitalists Put All Their Eggs in One Basket? Diversification versus Pure-Play Strategies in Venture Capital

  • April Knill

"Managing the different companies in which they invest while at the same time performing portfolio optimization for themselves, venture capitalists position themselves as a pure-play or diversified conglomerate through their cumulative portfolios. I examine the effects of two investment strategies of venture capitalists:" 1) "a specialist "pure-play" strategy that maximizes venture capital involvement and" 2) "a more generalist strategy of diversification at the "firm" level that minimizes portfolio risk. I find that neither strategy optimizes both venture capital growth and time to entrepreneurial exit, which highlights a need for institutional investors to clarify fund objectives at the time a fund is established." Copyright (c) 2009 Financial Management Association International.

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Article provided by Financial Management Association International in its journal Financial Management.

Volume (Year): 38 (2009)
Issue (Month): 3 (09)
Pages: 441-486

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Handle: RePEc:bla:finmgt:v:38:y:2009:i:3:p:441-486
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