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Diversification and size in venture capital investing

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Abstract

We empirically examine the interaction between different types of diversification (stage, industry, geography) and portfolio size, i.e., number of investee companies, in explaining venture capital (VC) funds’ returns. We study a comprehensive dataset of 422 liquidated US VC funds to conduct multiple analyses in a large timeframe. The results show that large portfolio size and diversification in a limited number of industries contribute positively to fund performance, while stage and geographical diversification have no significant relationship with returns. Our findings can support both the practice of VC portfolio management in reaching better capital allocation efficiency and policymakers in providing guidance for VC fund development programmes backed by sovereign and international institutions.

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Authors and Affiliations

  1. Università di Pisa, Via Cosimo Ridolfi, 10, 56124, Pisa, Italy

    Emanuele Teti

  2. Bocconi University and SDA Bocconi, Via Sarfatti, 10, 20136, Milan, Italy

    Alberto Dell’Acqua

  3. Bocconi University, Via Sarfatti, 25, 20136, Milan, Italy

    Ada Bovsunovsky

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  1. Emanuele Teti
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  2. Alberto Dell’Acqua
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  3. Ada Bovsunovsky
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Correspondence to Emanuele Teti.

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Teti, E., Dell’Acqua, A. & Bovsunovsky, A. Diversification and size in venture capital investing. Eurasian Bus Rev (2024). https://doi.org/10.1007/s40821-024-00258-7

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