Home > Awards > 2017 Awards – Winners > The Gift of Inheritance: How Voluntary Turnover in Venture Capital Firms Affects the Performance of Portfolio Start-ups Coller Institute of Venture 2017 Research Runner-Up Award, awarded to Serden Ozcan, WHU - Otto Belsheim School of Business

The Gift of Inheritance: How Voluntary Turnover in Venture Capital Firms Affects the Performance of Portfolio Start-ups Coller Institute of Venture 2017 Research Runner-Up Award, awarded to Serden Ozcan, WHU - Otto Belsheim School of Business

Serden Ozcan is a Professor and the Chair of Innovation and Corporate Transformation at WHU – Otto Beisheim School of Management. He also serves as the academic director of Campus for Finance Private Equity Conference and the coordinator of the Management Abroad United Arab Emirates Program. Prior to WHU, he was the founding Director of Entrepreneurship Platform at Copenhagen Business School (CBS), responsible for coordinating and facilitating CBS’ entrepreneurship-related research, education, outreach, fundraising and internationalization activities.

Professor Ozcan’s main research interests are entrepreneurship, private equity, and corporate transformation. He is the recipient of multiple international research awards and his publications may be found in leading academic journals such as Academy of Management Journal, Management Science, Organization Science, Journal of Management Studies and Strategic Organization.

Professor Ozcan has extensive experience with start-ups and incubators and as an advisor and a mentor as well as a board member, and has advised several social entrepreneurship initiatives and organizations in the Middle East, Africa, and Southeast Asia. He sits amongst others on the advisory board of a Berlin-based venture capital firm. He is frequently interviewed by the media on issues concerning entrepreneurship, corporate strategy, innovation and private equity.

Work Abstract

The Gift of Inheritance: How Voluntary Turnover in Venture Capital Firms Affects the Performance of Portfolio Start-ups

Serden Ozcan, Dirk Sassmannshausen

Venture capitalists (VCs) frequently leave their firms voluntarily even when their firms are successful and have ample capital to invest. A key repercussion of VCs’ exits from their firms (VCFs) is the reassignment of their portfolio start-ups to their colleagues. No study to date has investigated the performance implications of these reallocations for the start-ups. We develop a theoretical framework that predicts the effect of inheritance on the failure of portfolio start-ups. We especially consider the co-evolutionary nature of venture management and focus on the cognitive and psychological mechanisms. We then turn to individual, organizational and inter-organizational antecedents of commitment and test for their moderating effects. Our detailed empirical study of 361 start-ups that received investment from the largest European early-stage VCF shows that inheritance reduces time to failure by nearly eight months. These negative effects are amplified when the inheriting investment manager has lesser entrepreneurial experience or better portfolio multiple. We also find that the negative performance effect of inheritance is larger the larger is the stake of co-investors, the greater is the average co-investment experience with co-investors or when the VC is not a lead investor.