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Specialization and Success: Evidence from Venture Capital

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  • Paul Gompers
  • Anna Kovner
  • Josh Lerner

Abstract

This paper examines how organizational structure affects behavior and outcomes, studying the performance of different types of venture capital organizations. We find a strong positive relationship between the degree of specialization by individual venture capitalists at a firm and its success. When the individual investment professionals are highly specialized themselves, the marginal effect of increasing overall firm specialization is much weaker. The poorer performance by generalists appears to be due to both an inefficient allocation of funding across industries and poor selection of investments within industries. Venture capital organizations with more experience tend to outperform those with less experience.

Suggested Citation

  • Paul Gompers & Anna Kovner & Josh Lerner, 2009. "Specialization and Success: Evidence from Venture Capital," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 817-844, September.
    • Handle: RePEc:bla:jemstr:v:18:y:2009:i:3:p:817-844
    DOI: 10.1111/j.1530-9134.2009.00230.x
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    References listed on IDEAS

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    1. Masako Ueda, 2004. "Banks versus Venture Capital: Project Evaluation, Screening, and Expropriation," Journal of Finance, American Finance Association, vol. 59(2), pages 601-621, April.
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    13. Yosha Oved, 1995. "Information Disclosure Costs and the Choice of Financing Source," Journal of Financial Intermediation, Elsevier, vol. 4(1), pages 3-20, January.
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