@article {Gao59, author = {Lucia Silva Gao}, title = {Portfolio Industry Strategy in Venture Capital Investments}, volume = {14}, number = {2}, pages = {59--71}, year = {2011}, doi = {10.3905/jpe.2011.14.2.059}, publisher = {Institutional Investor Journals Umbrella}, 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 {\textquotedblleft}software stack{\textquotedblright} 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.TOPICS: Private equity, portfolio construction, statistical methods, performance measurement}, issn = {1096-5572}, URL = {https://jpe.pm-research.com/content/14/2/59}, eprint = {https://jpe.pm-research.com/content/14/2/59.full.pdf}, journal = {The Journal of Private Equity (Retired)} }