Cross-disciplinary Seminar Series in

Strategy and Entrepreneurship

Specialization and Success: Evidence from Venture Capital
Josh Lerner, Harvard Business School
(for full paper, click here)

Abstract:
This paper examines how organizational structure affects behavior and performance by looking closely at the performance of different types of venture capital organizations.  We find a strong positive relationship between the degree of specialization by individual venture capitalists at a firm and its success.  At the same time, however, the marginal effect of increasing specialization at the firm is much weaker when the individual investment professionals are highly specialized themselves.  The deterioration in performance appears due to both an inefficient allocation of funding across industries and poor selection of investments within industries.  Organizational characteristics, however, are not irrelevant:  venture capital organizations with more experience tend to outperform those with less experience.

Bio:
Josh Lerner is the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, with a joint appointment in the Finance and Entrepreneurial Management Units. He graduated from Yale College with a Special Divisional Major that combined physics with the history of technology. He worked for several years on issues concerning technological innovation and public policy, at the Brookings Institution, for a public-private task force in Chicago, and on Capitol Hill. He then obtained a Ph.D. from Harvard's Economics Department.

Much of his research focuses on the structure and role of venture capital and private equity organizations. (This research is collected in two books, The Venture Capital Cycle and The Money of Invention.) He also examines policies towards intellectual property protection, particularly patents, and how they impact firm strategies in high-technology industries. (The research is discussed in the Innovation and Its Discontents.) He founded, raised funding for, and organizes two groups at the National Bureau of Economic Research: Entrepreneurship and Innovation Policy and the Economy. He is a member of a number of other NBER groups and serves as co-editor of their publication, Innovation Policy and the Economy. His work has been published in a variety of top academic journals.

In the 1993-94 academic year, he introduced an elective course for second-year MBAs on private equity finance. In recent years, “Venture Capital and Private Equity” has consistently been one of the largest elective courses at Harvard Business School. (The course materials are collected in Venture Capital and Private Equity: A Casebook, now in its third edition (Wiley, 2004).) He also teaches a doctoral course on entrepreneurship and organizes an annual executive course on private equity. He serves as the School’s representative on Harvard University Patent, Trademark and Copyright Committee and on the Provost’s Committee on Technology Transfer.

For information about the series, contact Dianne Fox at dfox@rhsmith.umd.edu.