Assistant Professor of Strategy and Entrepreneurship, Kenan-Flagler Business School, University of North Carolina at Chapel Hill

Small Fish, Big Fish: The Impact of Venture Capital Portfolio Composition on Affiliation Benefits

This study argues and demonstrates that the value of a venture’s affiliations depends in part on its relative standing in the portfolio of affiliations held by its partners. Relative standing refers to how the venture ranks among other ventures in the partner’s portfolio with respect to observable signals of quality. The relative standing of a venture in its partner’s portfolio influences the venture’s access to the partner’s resources and, subsequently, the venture’s performance. We also argue that a venture’s relative standing becomes a more important predictor of performance when the partner has a larger portfolio or higher status. An empirical test of the equity investments by venture capital firms in 1011 private biotechnology ventures between 1980 and 2004 provides support for the hypotheses.