Limited partners persistence as the key to predictive performance in venture capital
Published:
Dec 11, 2024
Volume:
22
Keywords:
Venture capital
Limited partners
Performance persistence
Networks
Abstract
This paper provides evidence supporting an alternative predictor for performance in venture capital (VC) - limited partner (LP) Persistence, rather than using the well-known previous fund performance. This offers empirical validation for several theories related to LP persistence, where investors reinvest in both previous and current funds managed by the same general partner (GP). Moreover, using a novel identification strategy, we apply Network Theory to identify persistent LPs, which enhances the robustness of the predictive results. Lastly, we observe a concave relationship between performance and the quantity of LPs reinvesting in follow-on funds, suggesting diminishing returns associated with the addition of new LPs.
How to cite
José Carlos Franco Abreu Neto, Richard Saito. Limited partners persistence as the key to predictive performance in venture capital. Brazilian Review of Finance, v. 22, n. 4, 2024. p. 27-56. DOI: 10.12660/rbfin.v22n4.2024.92317.
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