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Investing With Friends Brings Lower Returns, Study Finds

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While working alongside your best friend may seem like a great idea, it's not good for your bottom line.

People who decide to partner in business based on affinity as opposed to ability are less likely to reap successful investment returns, according to a new working paper from professors at Harvard University.

The paper, which studied over 3,500 venture capitalists, found that when venture capitalists of the same minority group join forces, their chances of a successful return on investment drops by 25 percent. The likelihood that a pair of partners will succeed drops by 22 percent if the two went to the same college and 18 percent if they started a business together before.

“Collaborations based on characteristics unrelated to ability might suffer from a ‘cost of friendship’ and induce a negative relationship between affinity based similarities and performance,” the researchers wrote in the report.

That said, we may be hardwired for this type of detrimental collaboration. When it comes to entrepreneurship, teaming up with a friend is one of the most popular ways to start a business, Brian Tracy, an entrepreneurship and sales consultant and speaker, told the New York Times.

Friends considering a joint venture should be wary, “such partnerships are fraught with danger,” Tracy said. Just ask Facebook co-founders Mark Zuckerberg and Eduardo Saverin. The two college buddies allegedly had a fallout after founding the company (as famously chronicled in The Social Network), though now Saverin claims that there are “no hard feelings” between the former friends.

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