Abstract
This study examines the investor's decision on the exit of loss making projects. The investor faces a liquidation dilemma: follow-on financing versus terminating a loss making investment, and thereby giving up the turn-around option. I examine the role of investment experience on solving this liquidation dilemma. Evidence from a sample of 712 realized Private Equity and Venture Capital investments confirms that young and inexperienced fund managers (i) hold loss-making investments longer, (ii) invest a higher share of the fund's portfolio capital into these losers, and (iii) provide relatively more financing rounds to these deals before the exit compared to more experienced funds. The results are robust to controlling for potential reputational concerns.
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