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Limited partners’ contribution to venture capital fund returns: newbies versus experienced

Khaled Abdou (Division of Engineering, Business and Computing, The Pennsylvania State University - Berks, Reading, Pennsylvania, USA)
Paramita Gupta (Department of Finance, California State University Long Beach, Long Beach, California, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 12 April 2024

Issue publication date: 25 June 2024

56

Abstract

Purpose

This study aims to investigate limited partners’ (LPs) influence on venture capital (VC) fund returns.

Design/methodology/approach

We merge data from Preqin and SDC’s VentureXpert spanning from 1993 to 2014 and conduct multiple regression analysis to examine the influence of LPs on VC fund performance. Additionally, we conduct three distinct robustness tests to verify the credibility of our findings.

Findings

Our empirical analysis demonstrates that newbie LPs consistently exert a significant positive influence on VC fund returns.

Research limitations/implications

VC and LP data is self-reported, and there is no comprehensive dataset as some LPs prefer to maintain anonymity.

Originality/value

Extant literature on LPs’ contribution to VC fund performance is limited. The general assumption is that the role of LPs in VC fund performance is confined to funding. We introduce a new variable, LP track record, as a proxy for LP experience to examine if this variable influences VC performance.

Keywords

Acknowledgements

We thank Dr Don Johnson, the editor and an anonymous referee for their valuable comments and feedback, which significantly enhanced our manuscript. Additionally, we would like to express our appreciation to members of the venture capital community and conference participants for their insightful comments during the paper presentations. Any remaining errors are solely ours.

Citation

Abdou, K. and Gupta, P. (2024), "Limited partners’ contribution to venture capital fund returns: newbies versus experienced", Managerial Finance, Vol. 50 No. 7, pp. 1387-1406. https://doi.org/10.1108/MF-10-2023-0606

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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