Initial venture capital (VC) investments and follow-on investments differ significantly in terms of uncertainty, risk exposure, and information availability, shaping how VC firms approach industry specialization and international investment decisions. Early-stage (initial) investments carry a higher degree of uncertainty as startups typically lack proven business models, financial traction, and operational track records. In contrast, follow-on investments occur after startups demonstrate market validation, revenue growth, and improved financial stability, allowing investors to make more data-driven decisions with reduced risk. As a result, industry-specialized venture capitalists—who possess deep expertise in a specific sector—are better equipped to assess and mitigate risks associated with early-stage investments, leading to a greater willingness to invest in high-potential but unproven startups.,Industry specialization also plays a crucial role in shaping cross-border investment strategies. Venture capitalists with deep knowledge of a particular industry face lower risk when investing in foreign markets, as their expertise reduces the liability of foreignness—the disadvantages associated with operating in an unfamiliar regulatory, cultural, and economic environment. Specialized investors understand sector-specific dynamics, global market trends, and regulatory nuances, allowing them to assess international opportunities more effectively than generalist VCs. This expertise enhances their ability to identify high-potential startups, provide sector-relevant mentorship, and facilitate strategic partnerships in global markets.,Moreover, specialized VCs add greater value to their international portfolio companies by offering targeted guidance, access to industry networks, and strategic insights, which accelerate growth and improve scalability across borders. Their ability to navigate sector-specific regulations, intellectual property concerns, and market entry strategies gives them a competitive advantage in cross-border deals, making them more likely to engage in international investments compared to generalist VCs.,As venture capital becomes increasingly globalized, industry specialization is emerging as a key factor in mitigating risk, enhancing due diligence, and improving investment outcomes in both domestic and international markets. Specialized investors are not only better positioned to identify promising startups but also more effective in managing post-investment value creation, making them critical players in the expansion of venture capital into international and emerging markets.,

This study underscores the critical role of industry specialization in shaping venture capitalists' cross-border investment strategies, demonstrating how deep industry expertise mitigates risk and enhances investment outcomes in foreign markets. Specialized venture capitalists (VCs) possess sector-specific knowledge, regulatory insights, and market intelligence, which reduces the uncertainty typically associated with international investments. Unlike generalist VCs, who may struggle with unfamiliar market conditions and cultural differences, industry-focused investors can more effectively evaluate startup potential, anticipate market dynamics, and navigate competitive landscapes in foreign economies.,The research highlights that greater specialization significantly increases the likelihood of engaging in cross-border investments, as expertise in a specific sector minimizes the liability of foreignness—the disadvantages associated with operating in an unfamiliar regulatory and business environment. By leveraging industry-specific networks, technical knowledge, and strategic partnerships, specialized VCs can offer greater value to international portfolio companies, assisting them with market entry strategies, regulatory compliance, and operational scaling in foreign markets. Their ability to assess business models, technology adoption rates, and sector-specific trends across different geographies enables them to identify high-growth opportunities that generalist investors might overlook.,Furthermore, specialized VCs provide more than just financial capital—they enhance startup success rates by offering tailored guidance, access to established industry players, and targeted growth strategies. This active involvement reduces operational risks for international portfolio companies, ensuring smoother adaptation to local market conditions, competitive pressures, and regulatory requirements. As venture capital becomes increasingly globalized, this study emphasizes the growing importance of industry expertise in expanding investment horizons, making specialized VCs more effective at scaling startups beyond their domestic markets. The findings offer crucial insights for VCs looking to expand internationally, reinforcing that sector specialization is a powerful tool for mitigating risks, identifying high-potential startups, and driving superior returns in foreign markets.,