Does Diversification Affect VC Funds’ Performance? Evidence from the Venture Capital Industry in the UK

This paper examines whether and how different investment strategies by Venture Capital (VC) firms, in terms of specialization vs. diversification, affect fund performance. We empirically assess the performance consequences of VCs’ portfolio diversification (by industry and country) strategies using an original dataset of 651 VC funds originated in the United Kingdom over the period 1981-2000. Results show that specialization by industry improves VC fund performance, in line with the predictions of the resource-based theor