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Publications
  • 2014
  • Working Paper

The Cost of Friendship

By: Paul A. Gompers, Vladimir Mukharlyamov and Yuhai Xuan
  • Format:Print
  • | Language:English
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Abstract

We investigate how personal characteristics affect people's desire to collaborate and whether this attraction enhances or detracts from performance in venture capital. We find that venture capitalists who share the same ethnic, educational, or career background are more likely to syndicate with each other. This homophily reduces the probability of investment success, and the detrimental effect is most prominent for early-stage investments. A variety of tests show that the cost of affinity is most likely attributable to poor decision making by high-affinity syndicates after the investment is made. These results suggest that "birds-of-a-feather-flock-together" effects in collaboration can be costly.

Keywords

Venture Capital; Partners and Partnerships; Decision Making; Identity

Citation

Gompers, Paul A., Vladimir Mukharlyamov, and Yuhai Xuan. "The Cost of Friendship." Working Paper, 2014.
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About The Author

Paul A. Gompers

Entrepreneurial Management
→More Publications

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More from the Authors
  • Mobvoi's Path Through Market Challenges and Business Reinvention By: Paul A. Gompers and Shu Lin
  • Harvard Students Should Ignore Calls to Boycott Israel Trek By: Jesse M. Fried, Paul A. Gompers, Scott Kominers and Mark C. Poznansky
  • Grab Returns: Riding the SPAC-tacular Highway? By: Paul Gompers, Graham Blanks and Sachin Srivastava
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