What drives venture capitalists to stray from their preferred investment industries?

Within the industry of venture capital, I analyze what are the contributing factors that lead to venture capitalist investing outside of their preferred investment industry, despite documented subpar results when doing so. Initial tests indicate that the largest determinant of a non-preferred industry investment is if a VC firm’s past investments are concentrated in only a few industries. However, with the addition of VC firm fixed effects, I find the greatest contributing factor to be the VC’s preferred industry deal flow, where low deal flow significant increases the likelihood that a VC will invest in non-preferred industry investments. Furthermore, consistent with the notion that highly sought after VCs will have less exposure to fluctuations in deal flow, the deal flow effect is shown to be significantly more pronounced the less experience the VC has in their preferred industry.