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Are specialized VCs special?

March 24, 2022

A recent analysis by PitchBook attempts to assess whether venture capital funds that specialize in a specific technology sector outperform generalist VCs or VCs that are targeted but not quite “specialized.” In short, the answer is no, at least as measured by financial return.

PitchBook’s assessment of funds created in 1996-2015 shows that the returns (both in the form of ROI and total value relative to investment) are largely similar and with no long-term trend toward one investment strategy or the other.

This result prompts additional questions that could help advance the field. One area of research that SSTI hopes PitchBook will address in the future is: if not across the board, do specialist funds at least outperform generalists within their advertised area of expertise? Targeted and specialized investors may want to conduct their own assessments to consider whether their strategy is critical to how they are able to achieve parity with other strategies, or if they could do better without a self-imposed sectoral limitation.

From an economic development perspective, there can still be compelling reasons to create specialized funds, such as ensuring that investment funds are available for emerging sectors that are under-supported by generalist VCs, or to strengthen a strategically-important industry cluster.

venture capital