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Article

Portfolio Industry Strategy in Venture Capital Investments

Lucia Silva Gao
The Journal of Private Equity Spring 2011, 14 (2) 59-71; DOI: https://doi.org/10.3905/jpe.2011.14.2.059
Lucia Silva Gao
is an assistant professor of finance in the College of Management at the University of Massachusetts Boston in Boston, MA.
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  • For correspondence: lucia.silva-gao@umb.edu
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Abstract

Venture capitalists make investments decisions at the level of the individual companies and at the level of the portfolio of companies. This article studies the impact of a VC industry portfolio strategy on portfolio performance. Three types of strategies are considered: industry specialization, industry diversification, and complementary networks investments. I find that venture capital firms that specialize in terms of industry exhibit better portfolio performance. When I look further at portfolios with investments in information technology, I find that these portfolios are diversified at a narrower industry classification level. I apply the concept of “software stack” to capture the existence of complementary network effects and find that venture capitalists may pursue a strategy of investing in ventures that are complementary components of a network system. The results also show that these complementary investments are comparably more successful.

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The Journal of Private Equity: 14 (2)
The Journal of Private Equity
Vol. 14, Issue 2
Spring 2011
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Portfolio Industry Strategy in Venture Capital Investments
Lucia Silva Gao
The Journal of Private Equity Feb 2011, 14 (2) 59-71; DOI: 10.3905/jpe.2011.14.2.059

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Portfolio Industry Strategy in Venture Capital Investments
Lucia Silva Gao
The Journal of Private Equity Feb 2011, 14 (2) 59-71; DOI: 10.3905/jpe.2011.14.2.059
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