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The Fast and the Curious: VC Drift

Author

Listed:
  • Amit Bubna

    (Independent)

  • Sanjiv R. Das

    (Santa Clara University)

  • Paul Hanouna

    (Villanova University)

Abstract

We develop a measure of a VC firm’s investment style and its change over time (drift). While drift can be beneficial for responding to new market conditions, it reduces the ability to develop style expertise. We document evidence of drift among VCs and find that it is more prevalent among VCs who are less experienced and face pressure to invest their funds. We also find a negative relation between drift and performance, with stronger effects for VCs who herd and are seasoned. Overall, our results are consistent with the hypothesis that drift is detrimental to VC performance.

Suggested Citation

  • Amit Bubna & Sanjiv R. Das & Paul Hanouna, 2020. "The Fast and the Curious: VC Drift," Journal of Financial Services Research, Springer;Western Finance Association, vol. 57(1), pages 69-113, February.
    • Handle: RePEc:kap:jfsres:v:57:y:2020:i:1:d:10.1007_s10693-018-0302-0
    DOI: 10.1007/s10693-018-0302-0
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    More about this item

    Keywords

    Venture capital; Style persistence; Style drift;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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