The Persistent Effect of Initial Success: Evidence from Venture Capital / Ramana Nanda, Sampsa Samila, Olav Sorenson.

Format:

Book

Author/Creator:

Nanda, Ramana.

Contributor:

National Bureau of Economic Research.

Samila, Sampsa.

Sorenson, Olav.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24887.

NBER working paper series no. w24887

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Persistent Effect of Initial Success

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

We use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional IPO among a VC firm's first ten investments predicts as much as an 8% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times to invest; but early success does lead to investing in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.

Notes:

Print version record

August 2018.