Diversification in the venture capital industry: leveraging knowledge under uncertainty

Title: Diversification in the venture capital industry: leveraging knowledge under uncertainty
Creator: Matusik, Sharon F.; Fitza, Markus A.
Relation: Strategic Management Journal Vol. 33, Issue 4, p. 407-426
Publisher Link: http://dx.doi.org/10.1002/smj.1942
Publisher: John Wiley & Sons Ltd.
Resource Type: journal article
Date: 2012
Description: This study contributes to the research on the effect of diversification on performance under conditions of uncertainty. More specifically, we examine diversification in the context of venture capital firms. Drawing on the knowledge and organizational learning literature, we hypothesize that firms benefit from either low levels of diversification because of efficiencies in processing knowledge or high levels of diversification because of access to broad information that facilitates solving complex problems and the ability to direct a portfolio company down different trajectories. Consistent with our hypotheses, we find a U-shaped relationship. Firms benefit from either low or high levels of diversification; moderate levels yield the poorest results. When uncertainty is highest (i.e., early stage investing, no coinvestors), the effects are most pronounced.
Subject: venture capital; knowledge; diversification; uncertainty; entrepreneurship; organizational learning
Identifier: http://hdl.handle.net/1959.13/1057508
Identifier: uon:16194
Identifier: ISSN:0143-2095
Language: eng
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