WHEN VENTURE CAPITALISTS work together
by investing in the same projects,
their ongoing collaboration reduces the
risk that investors will behave selfishly
or let colleagues do all the work. This,
in turn, increases the likelihood that the
enterprises they back will thrive. However,
if they collaborate too often, they
encounter other risks, such as relying
too much on their trust in each other.
When this happens, ventures are less
likely to succeed.
Those were the findings of Cristiano
Bellavitis, an assistant professor
in management and international
business at Auckland Business School
at the University of Auckland in New
Zealand; Joost Rietveld, an assistant
professor at the University of London
College’s School of Management in the
U.K.; and Igor Filatotchev, a professor
of corporate governance and strategy
at King’s College London.
The researchers analyzed 4,550 U.S.
new ventures that received investments
from collaborating venture capitalists
from 1980 to 2017. The researchers
discovered not only that long-time
collaborations present both benefits and
risks, but that those effects were more
pronounced for younger ventures than
for older ventures.
Bellavitis, Rietveld, and Filatotchev
also found that collaborators who were
located more closely to each other experienced
the whole cycle more quickly:
Their success rate from working together
repeatedly peaked sooner and
The researchers concluded that because
extended collaborations have positive
and negative consequences, venture
capitalists should look for opportunities
to work together—but not too often.
“The effects of prior co-investments
on the performance of venture capitalist
syndicates: A relational agency perspective”
was published May 8, 2019, in the
Strategic Entrepreneurship Journal.