Most empirical studies that test the influence of R&D collaboration on innovation performance either focus on the diversity of partners that enhances innovation or focus on social embeddedness of partners that enhances or inhibits innovation. We combine these two factors to explain innovation. By using the business interaction model (Håkansson et al., 2009) we test the effect of resource heterogeneity, value chain complementarity, user interaction, and structural stability of partnership portfolios on application and value creation performance of public nanotechnology R&D projects. We used an enriched database on utilization of technology research projects from the Dutch Technology Foundation STW. To test our hypotheses we selected from the database 206 nanotechnology research projects, which started in a five year period from 2000 to 2004. Project performance was measured five years after completion of the project. Support is found for an inverted U shaped effect of the interaction between stability of the relationship structure and technological heterogeneity, industry heterogeneity, value chain complementarity and user interaction in the R&D partnership portfolios on both application and value creation performance. The framework introduced in this study allows an evaluation of the effects of participant portfolios on Public R&D projects performance.