Diversification in the venture capital industry: leveraging knowledge under uncertainty
Article first published online: 17 NOV 2011
Copyright © 2011 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 33, Issue 4, pages 407–426, April 2012
How to Cite
Matusik, S. F. and Fitza, M. A. (2012), Diversification in the venture capital industry: leveraging knowledge under uncertainty. Strat. Mgmt. J., 33: 407–426. doi: 10.1002/smj.1942
- Issue published online: 3 FEB 2012
- Article first published online: 17 NOV 2011
- Accepted manuscript online: 7 NOV 2011 09:03AM EST
- Manuscript Revised: 28 OCT 2011
- Manuscript Received: 30 OCT 2008
- venture capital;
- organizational learning
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. Copyright © 2011 John Wiley & Sons, Ltd.