The Effect of Venture Capital Equity Concentration on the Investment Performance

Abstract

This paper explores the effect of equity concentration among venture capital syndicate members on the investment performance. While the importance of equity split on the early stage of a venture firm is widely perceived among business practitioners, the effect of the level of equal/unequal distribution of equity shares, particularly among venture capital syndicate members, has not been empirically explored. Drawing on theories of power and hierarchy, I propose that the higher level of equity concentration will have a negative effect on the investment performance. I also hypothesize that familiarity among syndicate members and being in a later investment stage will moderate the negative effect of equity concentration. I find strong empirical support for the hypotheses.