SGS Brownbag - Ron Rabi, HEC Lausanne

Venture capital firms (VCFs) often refer investments to their network peers. Scholars argue that referrals alleviate idiosyncratic risks, and reduce the cost of sorting investments. Yet, research on the strategic implications of referrals on VCF is scant. The present study investigates the impact of network referrals on the redistribution of VCF resources within a referred deal and across other startups in a VCF portfolio. At the deal-referral level, we hope to show that VCFs respond to the fall in idiosyncratic risks by increasing their financial exposure while reducing monitoring activity. As such, deal referrals allow VCFs to save resources while taking an advantageous financial position in the referred startup. We also aim to show that deal referrals motivate the redistribution of resources in a portfolio