Working Paper: NBER ID: w26274
Authors: Qianqian Du; Thomas F. Hellmann
Abstract: Does doing more deals together always strengthen investor relationships? Based on the relationships of the top 50 US venture capital firms, this paper focuses on the strengths of relationships and their dynamic evolution. Empirical estimates indicate that having a deeper relationship leads to fewer, not more future coinvestments. Moreover, deeper relationships lead to lower exit performance, even after controlling for endogeneity. Interestingly, deeper relationships first lead to lower performance, and subsequently lead to a slowdown in the relationship intensity. Relationship effects are more negative for VC firms with less central network positions, and for deals made in “hot” investment markets.
Keywords: venture capital; relationships; co-investment; performance; network dynamics
JEL Codes: G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| relationships formed during 'hot' market periods (L14) | sustainability of relationships (Q01) |
| network centrality (D85) | impact of past co-investments on future co-investment behavior (G41) |
| stronger prior relationships (L14) | likelihood of future co-investments (G11) |
| number of past co-investments (G11) | likelihood of new co-investments (G11) |
| deeper relationships (Y80) | lower exit performance (D29) |
| past co-investments (G11) | IPO or acquisition outcomes (G24) |