Investment Allocation and Performance in Venture Capital Hung-Chia Hsu, Vikram Nanda, Qinghai Wang * November, 2016 Abstract We study venture capital investment decision within and across successive VC funds in a VC firm. We propose a model of VC strategic investment allocation and find empirical support for its predictions. VC firms allocate higher quality investments to new, rather than existing funds, particularly after early investment success in the existing funds. Early investments in VC funds are more likely to exit successfully than later investments, and there is little persistence in investment outcomes within funds. Investment allocation contributes to performance persistence across VC funds, but the documented persistence in performance is driven almost entirely by early investments in the funds. Keywords: Venture Capital, Investment Decision, Investment Performance JEL Codes: G20, G24, G30 * Hung-Chia Hsu: Sam M. Walton College of Business, University of Arkansas, Fayetteville, AR 72701. Email: shsu@walton.uark.edu, Phone: (479)575-2316. Vikram Nanda: Naveen Jindal School of Business, University of Texas at Dallas, 800 W Campbell Road, Richardson, TX 75080; E-mail: vikram.nanda@utdalass.edu; Phone: (972)883-5004; Qinghai Wang: College of Business Administration, University of Central Florida, P.O. Box 161400, Orlando, FL 32816, E-mail: qinghai.wang@ucf.edu; Phone: (407)823-6453. We thank Bang Dang Nguyen, Xuan Tian, and seminar participants at Georgia Institute of Technology for comments.