Effects of Relational Capital and Commitment on Venture Capitalists' Perception of Portfolio Company Performance

Abstract

This study is an attempt to explain how therelationship between a venture capital firm (VCF) and its portfolio companies(PFCs) affects the VCF's perception of PFC performance. A discussion ofrelational capital and the relationship between trust and perceived performanceleads to the formulation of several hypotheses. These hypotheses predict thatVCFs' perception of PFC performance will be positively related to the degree towhich the VCF and PFC trust each other, interact socially, and share goals.Finally, VCFs' commitment to a PFC is expected to improve the VCF's perceptionsof PFC performance. Data from a 2002 survey of 298 U.S. venture capital firms are used to testthe hypotheses. Supplemented by interviews with several venture capitalists,the data indicate that relational capital and VCF commitment to the PFC doindeed contribute to VCFs' perceptions of PFC performance. Trust, socialinteraction, goal congruence, and VCF commitment all contribute uniquely toperceptions of PFC performance. (SAA)

Keywords: Portfolio firms, VentureXpert dataset, Capital, Social capital, Venture capital firms, Firm performance, Trust relationships, Commitment, Performance evaluation