The cost of friendship Gompers, Paul A.; Mukharlyamov, Vladimir; Xuan, Yuhai
Journal of financial economics,
03/2016, Letnik:
119, Številka:
3
Journal Article
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We investigate how personal characteristics affect people's desire to collaborate and whether this attraction enhances or detracts from performance in venture capital. We find that venture ...capitalists who share the same ethnic, educational, or career background are more likely to syndicate with each other. This homophily reduces the probability of investment success, and the detrimental effect is most prominent for early-stage investments. A variety of tests show that the cost of affinity is most likely attributable to poor decision-making by high-affinity syndicates after the investment is made. These results suggest that “birds-of-a-feather-flock-together” effects in collaboration can be costly.
We construct a comprehensive list of dual-class firms in the United States and use this list to analyze the relationship between insider ownership and firm value. Our data have two useful features. ...First, since dual-class stock separates cash-flow rights from voting rights, we can separately identify the impact of each. Second, we address endogeneity concerns by using exogenous predictors of dual-class status as instruments. In single-stage regressions, we find strong evidence that firm value is increasing in insiders' cash-flow rights and decreasing in insider voting rights. In instrumental variable regressions, the point estimates are similar but the significance levels are lower.
How do venture capitalists make decisions? Gompers, Paul A.; Gornall, Will; Kaplan, Steven N. ...
Journal of financial economics,
January 2020, 2020-01-00, 20200101, Letnik:
135, Številka:
1
Journal Article
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We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions. Using the framework in Kaplan and Strömberg (2001), we provide detailed information on VCs’ ...practices in pre-investment screening (sourcing evaluating and selecting investments), in structuring investments, and in post-investment monitoring and advising. In selecting investments, VCs see the management team as somewhat more important than business-related characteristics such as product or technology although there is meaningful cross-sectional variation across company stage and industry. VCs also attribute the ultimate investment success or failure more to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We compare our results to those for chief financial officers (Graham and Harvey, 2001) and private equity investors (Gompers et al., 2016a).
Given overall lack of gender diversity in the venture capital and entrepreneurship industry shown in Calder-Wang and Gompers (2017) we ask: What promotes greater gender diversity in hiring? Does ...diversity lead to better firm performance and higher investment returns? In this paper, using a unique dataset of the gender of venture capital partners’ children, we find strong evidence that when partners have more daughters, the propensity to hire female partners increases. Moreover, our instrumental variable results suggest that increased gender diversity improves deal and fund performance. Lastly, the effects are primarily driven by the gender of senior partners’ children.
This paper presents evidence of performance persistence in entrepreneurship. We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs ...and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market timing skill are also more likely to outperform industry peers in their subsequent ventures. This is consistent with the view that if suppliers and customers perceive the entrepreneur to have market timing skill, and is therefore more likely to succeed, they will be more willing to commit resources to the firm. In this way, success breeds success and strengthens performance persistence.
More than Money: Venture Capitalists on Boards Amornsiripanitch, Natee; Gompers, Paul A; Xuan, Yuhai
Journal of law, economics, & organization,
11/2019, Letnik:
35, Številka:
3
Journal Article
Recenzirano
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Abstract
We explore patterns of board structure and function in the venture capital industry, identifying factors that influence whether venture capitalists receive a board seat and whether they take ...action to help portfolio companies in which they invest. In a comprehensive sample of US-based and non-US-based companies, we find that a venture capital firm’s prior relationship with the founder, lead investor status, track record, network size, and geographical proximity to the portfolio company are positively correlated with its likelihood of taking a board seat in an investment round. When venture capital investors serve on the board, portfolio companies tend to recruit managers and board members from these investors’ network and are more likely to exit via relationship-based acquisitions. These patterns are particularly strong for successful and well-connected venture capitalists on the board.
This paper analyzes institutional investors' demand for stock characteristics and the implications of this demand for stock prices and returns. We find that “large” institutional investors nearly ...doubled their share of the stock market from 1980 to 1996. Overall, this compositional shift tends to increase demand for the stock of large companies and decrease demand for the stock of small companies. The compositional shift can, by itself, account for a nearly 50 percent increase in the price oflarge-company stock relative to small-company stock and can explain part of the disappearance of the historical small-company stock premium.
This paper analyzes how US universities contribute to the quantity and quality of VC-backed immigrant entrepreneurship in the US. Using a novel data set that identifies immigration status and ...education history for the near-universe of VC-backed founders in the US, we document several interrelated facts. First, immigrants contribute disproportionately to US VC-backed entrepreneurship, accounting for approximately 20 % of VC-backed companies. More than 75 % of these immigrant entrepreneurs obtained post-secondary education in the US, which suggests that higher education represents a primary entry channel for foreign entrepreneurial talent into the country. Given these facts, we assess how universities shape both the geographic distribution and the quality of immigrant entrepreneurship. Close to 40 % of US-educated immigrants start a company in the state of their alma mater, suggesting that place of education substantially impacts immigrant entrepreneurs' startup location choice. Regarding firm quality, immigrant founders are also more likely to found financially successful and scientifically innovative startups than their US-born counterparts. Altogether, the results suggest that foreign students educated in US universities substantially contribute to local and national VC-backed entrepreneurship, thereby identifying higher education's global scope as a potential tool to attract entrepreneurial talent and encourage entrepreneurial growth.
•75% of VC-backed immigrant entrepreneurs arrived in the United States via higher education.•We show that both immigrant and native entrepreneurs are very likely to start companies in the same state that they received their final postsecondary education degree. This result highlights universities’ role in contributing to the quantity of high-growth-potential immigrant entrepreneurship in their respective local economies.•We show suggestive evidence that immigrant entrepreneurship does not seem to crowd out native entrepreneurship.•We show that the influx of immigrant entrepreneurs does not compromise the quality of VC-backed companies that get funded. Specifically, we show that companies started by immigrant founders are more likely to achieve financial success and produce patents.
This paper describes board size and composition and investigates the role of venture capital in a sample of 1,116 firms' initial public offerings. First, firms backed by venture capital have fewer ...insider and instrumental directors and more independent outsiders. Second, we consider board composition as the outcome of a bargain between the CEO and outside shareholders. Representation of independent outsiders on the board decreases with the power of the CEO—tenure and voting control—and increases with the power of outside investors—venture capital backing and venture firm reputation. Third, within the sample of firms financed by venture capital and also consistent with a bargaining model, the probability that a founder remains as CEO is decreasing in venture firm reputation. Finally, we examine the influence of venture capital backing and board structure on firm outcomes in the 10 years after the initial public offering.
A large body of literature suggests that firm-level stock prices “underreact” to news about future cash flows; i.e., shocks to a firm's expected cash flows are positively correlated with shocks to ...expected returns on its stock. We examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Institutions buy shares from (sell shares to) individuals in response to positive (negative) cash-flow news, thus exploiting the underreaction phenomenon. Institutions are not simply following price momentum strategies: When price goes up (down) in the absence of any cash-flow news, institutions sell shares to (buy shares from) individuals. Although institutions are trading in the “right” direction, institutions as a group outperform individuals by only 1.44% per annum before transaction and other costs, because they are extremely conservative in deviating from the value-weighted market index.
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