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This paper provides evidence supporting an alternative predictor for performance in venture capital (VC) - limited partner (LP) Persistence, rather than using the well-known previous fund performance. This offers empirical validation for several theories related to LP persistence, where investors reinvest in both previous and current funds managed by the same general partner (GP). Moreover, using a novel identification strategy, we apply Network Theory to identify persistent LPs, which enhances the robustness of the predictive results. Lastly, we observe a concave relationship between performance and the quantity of LPs reinvesting in follow-on funds, suggesting diminishing returns associated with the addition of new LPs.
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Neto et al. (2024) studied this question.
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