Does venture capitalist activism improve investment performance?

Published

Journal Article

We investigate whether venture capitalist (VC) activism is associated with higher investment returns. Advising portfolio firms is time consuming and creates tradeoffs between intensity of VC activism and portfolio size. As the number of assisted firms expands, advice can be stretched too thin, reducing portfolio company prospects. We test the hypothesis that increasing the number of investments while intensely assisting portfolio companies is negatively associated with investment returns (the profit destruction effect). We find that aggressive VC activism does predict higher investment returns, but the profit destruction effect operates as well. Portfolio size growth thus risks overextending scarce VC resources and lowering returns. © 2011 Elsevier Inc.

Full Text

Duke Authors

Cited Authors

  • Jackson, WE; Bates, T; Bradford, WD

Published Date

  • May 1, 2012

Published In

Volume / Issue

  • 27 / 3

Start / End Page

  • 342 - 354

International Standard Serial Number (ISSN)

  • 0883-9026

Digital Object Identifier (DOI)

  • 10.1016/j.jbusvent.2011.02.003

Citation Source

  • Scopus