In Venture Capital, Birds of a Feather Lose Money Together
June 30, 2014
Here is some fascinating research from the Harvard Business School that shows that the more similarity there is between two VCs investing in a firm, the less likely the firm will succeed. This could have dramatic implications on how entrepreneurs should partner with various types of VC's as well as who should be on a company's board of directors.
"A recent study finds that venture capitalists have a strong tendency to team up with other VCs whose ethnic and educational backgrounds are similar to their own. Unfortunately, that tendency turns out to be bad for business.
"They found that the probability of success decreased by 17 percent if two co-investors had previously worked at the same company—even if they hadn't worked there at the same time. In cases where investors had attended the same undergraduate school, the success rate dropped by 19 percent. And, overall, investors who were members of the same ethnic minority were 20 percent less successful than investors with different ethnic backgrounds.
"At the early stage of a company, you want the people around the table to challenge each other."