Paper 5 | Families in Venture Capital

Abstract

This paper introduces a new type of family business by studying the investment strategies of family-managed venture capital funds (“Family VCs”) worldwide. It shows that Family VCs are more likely to invest in (syndicate with) geographically proximate startups (investors), indicating a preference for local investments. This tendency is stronger when the VC is named after the family and the family is closely involved in the decision-making process of the fund. By parsing the antecedents and performance implications of such an investment strategy, I demonstrate that it stems from both superior local knowledge (rational response) and home bias (non-rational response), with the latter becoming more pronounced when performance pressure is lower.