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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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