Title: Diversification over time: a dynamic approach of diversification in the US venture capital industry

Authors: Lei Xu; H. Shawna Chen; Qian Gu; Hans Hansen

Addresses: Marketing and Entrepreneurship Department, College of Business Administration, University of Missouri-St. Louis, 1 University Blvd., 224 Anheuser-Busch Hall, St. Louis, MO 63121-4400, USA ' Department of Organisational Behaviour, Human Resources, Entrepreneurship and Ethics, Goodman School of Business, Brock University, GSB424, Sir Isaac Brock Way, St. Catharines, Ontario, L2S 3A1, Canada ' Institute of International Business, J. Mack Robinson College of Business, Georgia State University, 35 Broad Street, Atlanta, GA 30303, USA ' Area of Management, Rawls College of Business, Texas Tech University, 703 Flint'Box 42101, Lubbock, Texas 79409-2101, USA

Abstract: Predictors of diversification are commonly time-variant but are often treated as static. In this paper, the role of time in firms' diversification decisions is explored using discontinuous growth modelling. Informed by the literature, three salient factors affecting change of organisational diversification over time were identified: founding team heterogeneity, reputation, and status. Our sample of 785 US venture capital (VC) firms from 1991 to 2016 show that the level of diversification among the US VC firms follows an inverted U-shaped pattern over time. Moreover, only founding team heterogeneity has a significant moderating effect on the relationship between diversification and time. To better inform and enrich our interpretation of these interesting findings, we conduct qualitative interviews with VC firm general partners and founders. It is suggested that, over time, founding team heterogeneity pull firms back toward their initial strategic choice of lower diversification. Founding team imprinting may explain this inverted U-shape of diversification over time - firms that initially chose low levels of diversification but later diversified in pursuing investments with high returns, would pull back to initial diversification levels over time in an attempt to achieve consensus among founding team members.

Keywords: time; diversification; founding team; discontinuous growth modelling; venture capital firm.

DOI: 10.1504/IJMED.2024.139281

International Journal of Management and Enterprise Development, 2024 Vol.23 No.2, pp.171 - 197

Received: 25 Dec 2022
Accepted: 30 Apr 2024
Published online: 28 Jun 2024 *

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