Yuhai Xuan

2 Results

 

The Cost of Friendship

In venture capital, friendship can be expensive. Using the VC industry as a testing ground, the authors seek to answer two questions about collaboration: What personal characteristics influence individuals' desires to work together in venture capital syndication? And given the influence of these personal characteristics, does attraction help or hurt investment performance? After examining the biographical characteristics and activities of more than 3,500 individual venture capitalists from 1975 to 2003, the authors show that people are more likely to collaborate with those who share similar characteristics with them. Findings also show that individual venture capitalists collaborate with other venture capitalists for both ability- and affinity-based characteristics. When they collaborate for ability-based characteristics it enhances investment performance; but when they partner for affinity-based characteristics it dramatically reduces investment returns. Read More

Bridge Building in Venture Capital-Backed Acquisitions

The acquisition of new capabilities through the purchase of small venture capital-backed start-ups is a strategy that has been employed by many large technology firms including Cisco, Microsoft, Google, and EMC. Young venture capital-backed companies, for their part, often develop innovative technologies that can be exploited by existing technology companies. The value inherent in these start-ups is typically tied up in the intellectual property or human capital that has been developed during the early stages of the company's life. The opportunity to acquire valuable intangible assets, however, is balanced by the difficulty in assessing the value of the underlying assets. Unlike purchasing companies with substantial operating profits and a long track record of sales, the ability to fully assess the prospects of intangible assets is subject to substantial asymmetric information and uncertainty. This paper explores mechanisms for limiting the asymmetric information that potentially plagues the acquisition of young venture capital-backed companies. The results also shed light on the value that venture capitalists add to their portfolio companies as well as to companies in their venture capital network. Read More