Do VCs matter? the importance of owners on performance variance in start-up firms

Adding to the corporate effect literature, we study the effect of owners on firm performance in a new context, that of venture capital firms (VCs) and the start-up firms in which they invest. After discussing the effect that VC ownership can have on start-ups, we estimate that start-up-specific, owner (VC), and year effects account for significant variance in performance (26.3 percent, 11.2 percent and 3.7 percent, respectively). The effects of industry and investment stage are not statistically different from zero. We also provide an analysis that separates the owner effect into two components: a selection component-which impacts investment-and a management component-which explains significant variance in performance. By examining the owner effect in a different institutionalized form of governance-that of the start-up and its relationship to VC owners-our study also contributes to an understanding of the 'ownership' effect in the strategy literature more generally.