Vc

We use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional initial public offering (IPO) among a VC firm’s first ten investments predicts as much as an 8% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times to invest; but early success does lead to investing in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.

Our study introduces venture capital (VC) investors’ personality as a new perspective on investment performance. We assemble a sample of 911 VC investors with 8,258 investments and apply novel text analysis methods to assess investors’ personality traits based on their Tweets. Drawing on interactionist perspectives of the personality– performance relationship, we develop and empirically test theory on the impact of VC investors’ personality traits on investment success. We find that extraversion relates positively, while agreeableness and conscientiousness relate negatively, to the likelihood of a successful exit. By disentangling treatment and selection effects, we find that personality is primarily related to investors’ ability to create more value for the venture post-investment rather than select higher quality ventures ex-ante."