Should business angels diversify their investment portfolios to achieve higher performance? The role of knowledge access through co-investment networks

Torben Antretter, Charlotta Sirén, Dietmar Grichnik*, Joakim Wincent

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper investigates the performance effects of business angel portfolio industry diversification. Using a unique bi-annual panel dataset of 142 members of a professional angel investment platform and their portfolio returns between 2013 and 2017, we consider the costs and benefits of diversifying investments into various industries. Drawing upon theoretical arguments about distant search, we theorize and find a nonlinear (S-shaped) relationship between portfolio industry diversification and performance. Further, we pay specific attention to a proposed overdiversification effect that takes place at high levels of portfolio industry diversification and show that this effect is moderated by individuals' access to industry knowledge through their co-investment networks. For business angels who have a central position within a diverse network of industry specialists, the overdiversification effect is less pronounced.
Original languageEnglish
Article number106043
Peer-reviewed scientific journalJournal of Business Venturing
Volume35
Issue number5
ISSN0883-9026
DOIs
Publication statusPublished - 29.08.2020
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • business angels
  • distant search
  • networks
  • portfolio diversification
  • syndication

Areas of Strength and Areas of High Potential (AoS and AoHP)

  • AoHP: Strategic and entrepreneurial praxis

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