Size and Focus of a Venture Capitalist's Portfolio

How do investment patterns of independent and captive private equity funds differ? Evidence from Germany

“…Gompers et al (2005a) provide evidence that private equity providers with a higher degree of specialization tend to be more successful. In addition, Fulghieri and Sevilir (2004) demonstrate, with the help of a theoretical model, that a high level of specialization strengthens the incentives of the private equity firm to exert effort. In line with this research, we conclude that the specialization and network creation of corporate and independent private equity firms enable them to offer more competent support and monitoring.…”

“…Another relevant explanation for such behavior is offered by Fulghieri and Sevilir (2004). They argue that a high level of focus allows the private equity firm to reallocate its resources from one investee to another, in case that one of the portfolio companies fails.…”

Does venture capitalist activism improve investment performance?

“…Furthermore, we extend research by Cumming (2006), Bernile et al (2007), and Keuschnigg (2003, 2004) on ramifications of the number of investments in VC portfolios. We also provide empirical support for a recent paper by Fulghieri and Sevilir (2009) that derives the optimal size and scope of a VC's portfolio by analyzing the combined impact of portfolio size and focus on the incentives of the VC and the entrepreneur.…”

“…How many companies should be included in the VC's portfolio? Following Gifford (1997), Keuschnigg (2003, 2004), and Fulghieri and Sevilir (2009), our study explores the idea that an optimal portfolio reflects a tradeoff between the number of portfolio firms included and the advisory effort allocated to them. There exist projected marginal benefits and marginal costs associated with the addition of each entrepreneurial firm to a VC portfolio.…”

“…A tradeoff between the number of portfolio companies and the quality of advice offered to each emerges. This tradeoff is apt to be particularly important when an increased demand for VC financing meets a short-run fixed supply of highly skilled and experienced VC general partners (Fulghieri and Sevilir, 2009).…”