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Publications
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

Finance
→More Publications

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More from the Authors
  • Entrepreneurial Exits By: Paul Gompers
  • No Revenge for Nerds? Evaluating the Careers of Ivy League Athletes By: Natee Amornsiripanitch, Paul A. Gompers, George Hu, Will Levinson and Vladimir Mukharlyamov
  • Honest Jobs: A Path to Redemption By: Paul A. Gompers and Jeffrey Barkas
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