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Venture capitalists' decision to withdraw: The role of portfolio configuration from a real options lens

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  • Yong Li
  • Tailan Chi

Abstract

When does a venture capital firm withdraw from an investment project prior to its completion? This study offers a real options view on this decision by examining the contingent effects of portfolio configuration. We explore how project withdrawal can be influenced by two distinct dimensions of portfolio configuration, portfolio focus in a strategic domain and portfolio diversity across multiple domains. The empirical analysis shows that while portfolio focus weakens the negative effect of industry‐level uncertainty on a venture capitalist's propensity to withdraw from a project, portfolio diversity strengthens the effect of uncertainty. This study informs current research on the boundary of real options theory and sheds light on the behavior of venture capitalists in financing entrepreneurship. Copyright © 2013 John Wiley & Sons, Ltd.

Suggested Citation

  • Yong Li & Tailan Chi, 2013. "Venture capitalists' decision to withdraw: The role of portfolio configuration from a real options lens," Strategic Management Journal, Wiley Blackwell, vol. 34(11), pages 1351-1366, November.
    • Handle: RePEc:bla:stratm:v:34:y:2013:i:11:p:1351-1366
    DOI: 10.1002/smj.2073
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    Cited by:

    1. Sun, Yicong & Fu, Hui, 2025. "Economic policy uncertainty and herding behavior in venture capital market: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 92(C).
    2. Bin Hao & Yanan Feng & Hongbin Tan & Mingzhu Ye, 2025. "Taking a Second Look at the Bait: Attention to Upside Potential Versus Downside Risk in Venture Capitalists’ Staged Investment," Entrepreneurship Theory and Practice, , vol. 49(1), pages 283-311, January.
    3. Andy El-Zayaty & Martin Ganco & Bekhzod Khoshimov, 2025. "Vague Language, Founding Team Human Capital, and Resource Acquisition," Organization Science, INFORMS, vol. 36(6), pages 2108-2128, November.
    4. Marek Kacer & Nicholas Wilson & Sana Zouari & Marc Cowling, 2025. "Entrepreneurial finance and the survival of equity-funded firms in crisis periods: the case of COVID-19," Small Business Economics, Springer, vol. 65(2), pages 837-870, August.

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