Venture capital investor type and the growth mode of new technology-based firms

Independent venture capital (IVC) investors have more powerful incentives than corporate venture capital (CVC) investors to take actions that signal their capabilities (i.e. to “grandstand”). We argue that this should engender differences in the treatment effect of IVC and CVC on the mode of growth of portfolio companies. Short-term sales growth of IVC-backed firms in the period that immediately follows the VC investment should outpace that of CVC-backed firms, while we expect no difference in employment growth. We find support for these theoretical predictions on a sample of 531 Italian new technology-based firms, using several panel estimators to control for endogeneity of IVC and CVC.     

Venture capital financing,strategic alliances,and the initial public offerings of Internet startups

This study examines how Internet startups' venture capital financing and strategic alliances affect these startups' ability to acquire the resources necessary for growth. Using the initial public offering (IPO) event as an early-stage measure for Internet startups' performance and controlling for the IPO market environment, this study found that three factors positively influenced a startup's time to IPO: the better the reputations of participating venture capital firms and strategic alliance partners were, the more money a startup raised, and the larger was the size of a startup's network of strategic alliances.     

Venture capital's role in financing innovation for economic growth

Previously, there has been little empirical evidence about the role of venture capital in fostering technological innovation. Recent research, sponsored by the National Science Foundation and Babson College and completed with our colleagues Stanley E. Pratt and Norman Fast (Venture Economics and Venture Capital Journal) shed some new light on the flow of venture capital to highly innovative technological ventures from 1967–1982. The evidence suggests that venture capital not only plays a significant role, but that it is a unique kind of investing in terms of when, where, and how it is done. Ironically, this research indicates that the “capital” in venture capital is the least important ingredient in fostering technological innovation. Rather, it is management intensive, requiring very early involvement by venture capitalists in nurturing budding innovators and technology, and thereby bird-dogging and accelerating the emergence of highly innovative technologies. Further, the post-1979 reduction of the capital-gains tax has led to unprecedented growth and development in the venture-capital industry. One result has been that a new industry structure is emerging, and along with it some new danger signals for the future flow and commercialization of technological innovation. Several lessons emerge from our findings that hold implications for venture capital investors and entrepreneurs alike.Successful venture-capital investing in technologically innovative firms requires more than just risk money. Savvy entrepreneurs seek out venture capitalists with noteworthy reputations for their nonmonetary, high value-added contributions to fledgling firms. Venture capitalists who can play a highly constructive role in emerging firms can attract higher-quality ventures. Qualities commonly cited by entrepreneurs are: helping to find the select key management-team members: providing credibility with suppliers and customers; and helping to shape strategy when the daily pressures postpone this vital task. As one put it, “It is far more important whom you obtain funding from than how much and at what price.”Investing in technologically innovative ventures is a more specialized business than suggested by the common stereotype of homogeneity among venture capitalists. Fewer than 5% of the 464 venture-capital firms in our study accounted for nearly 25% of all the investments in highly innovative technological ventures. Investors posses sepcialized know-how, including a web of contacts and networks, a great degree of syndication of deals, and a great intensity of involvement. The message for technology entrepreneurs is clear: focus on venture-capital firms with reputations for proven performance in your technology and market, especially with your targeted customers.Contrary to the notion that venture-capital investors sit and wait for business plans and innovative ideas to come to them and then simply write checks, many of the most active firms do just the opposite: they engage in active “bird-dogging” efforts to identify exceptional innovators with the relevant technical expertise and commitment to bring about the commercialization of promising technologies. They also team with innovators and entrepreneurs to create an “acceleration effect” by actually compressing the time span and increasing the velocity at which new technologies are brought to commercial maturity and societal utility. Founders and investors alike have related numerous examples of highly innovative technological ventures that became realities in what they believed to be one-fourth to one-half the time that would have been required within a large, established firm.Looking ahead, the new venture-capital climate of the mid-1980s offers both bane and blessing.As the pool of capital has exploded, the industry has become more diverse and specialized than even before. Sharp differences are visible in terms of investing objectives, criteria, and strategy, focusing on particular stages, size, and a technology-market niche. Megafunds of $100 + million have been raised, and as funds get larger the minimum investment escalates, typically $1 million or more now. Entrepreneurs in search of venture capital need to be more knowledgeable and focused than ever before.Significant portfolio problems continue to surface as the would-be “pearls” of 1982–1984 become “lemons” in 1985–1986. One results of this is the drying up of funds for seed and strat-up investments. Many venture capitalists are simply overburdened by cleaning up problems in their own portfolios and in replacing management. Fortunately, some innovative venture capitalists have seen opportunity in this adversity, and a handful of specialized seed and first-stage funds have been launched.Ironically, many of the trends and pressures in the venture-capital industry in the mid-1980s may inadvertently shift investing attention away from more innovative technological ventures. The implications of these changes are painful for entrepreneurs, investors, and the nations. How can technological innovation and international competitiveness be achieved of the venture-capital community is unable-or unwilling-to contribute as greatly to the funding of new innovations as it has in the past? Where will technology entrepreneurs find the risk capital and “value-added involvement” so vital to commercial success? And how can venture-capital pools provide the handsome yields on invested capital of the past if they shift investing to later-stage ventures?On the brighter side, we are still in an era of unprecedented opportunity for entrepreneurs and investors alike. Even with the sharp drop in new funds available in venture-capital pools to an estimated $2.5 billion in 1985, this is still 25 to 50 times greater than the annual flow of new venture capital during the dismal 1970s. The recent industry shake-up, coupled with a continuance of the favorable capital-gains tax, should foster a healthier, if not wiser and more disciplined, venture-capital industry during the remainder of the decade.     

Succession financing in family firms

Business succession is one of the primary management challenges for family firms. However, many family firms fail at this task because of financial issues. Although a vast number of studies have investigated the succession process, research thus far has failed to determine how and why family firms select particular forms of financing for succession-related expenditures. Accordingly, this study conceptually and empirically investigates succession financing. We introduce a conceptual framework that investigates the reasons behind an owner-manager’s intent to use debt for succession financing. Specifically, our model accounts for general and succession-related personal factors. However, we also include a set of firm-specific financing behavioral controls in our research. The empirical results are derived from a sample of 187 German family firms, and the results highlight financial knowledge, attitudes, succession experience, and succession planning as significant determinants of the owner-managers’ debt usage intentions. The implications and avenues for future research are discussed.     

Venture Capital in China

According to the report from the Zero2IPO ,a wellkonwn venture capital research and consultancy instititure in Chian,China‘s investment from venture capital fell greatly in the second season in 2003.For only 21 venture capital institutes invested in 28 enterprises,totalling US$93 million ,about 61% falling as compared whit US$240 million in the first season this year.For the first half of this year,venture capital from Chinese and overseas instititutes invested 66 domestic and domestic-related enterprises with the amount at US$332 million,witnessing 30% up as compared with the same period of last year,accounting for 79% of the total amount for last year.Such momentum is still encouraging for recovery of venture capital.     

Venture capital in the restaurant industry

Venture capital is an available and desirable form of growth financing for the restaurant industry. This article provides an introduction to venture-capital terms and practices, an overview of the history and structure of the venture community, and a summary of venture-capital activity and performance.     

Venture capital and high technology entrepreneurship

Venture capital clearly plays an important role in high technology entrepreneurship. The purpose of this article is to explain the differences among various venture capital complexes focusing on where venture capital is important to innovation and entrepreneurship and conversely where it is not. We do so through an empirical and historical examination of the seven most important venture capital complexes: California (San Francisco/ Silicon Valley), Massachusetts (Boston), New York, Illinois (Chicago), Texas, Connecticut, and Minnesota (Minneapolis).We establish a three-part tripartite typology for explaining the differences between these venture capital complexes: 1) technology-oriented complexes are located close to concentrations of high technology intensive businesses, invest most of their funds locally, and are net attractors of capital; 2) finance-oriented complexes are located around financial institutions and export their capital; and 3) hybrid complexes mix characteristics of both technology and finance-oriented venturing.Our findings have a series of important practical implications. Although venture capital is not absolutely necessary to facilitate high technology entepreneurship, well-developed venture capital networks provide tremendous incentives for entrepreneurship by lowering the difficulties of entering an industry. Venture capitalists use both their experience and their contacts to reduce many of the information and opportunity costs associated with new business formation. The importance of contact networks and information to both deal flow and investment monitoring goes a low way toward explaining why venture capitalists cluster tightly together. The availability of venture capital also attracts entrepreneurs and high quality personnel to a region creating a virtuous circle of new enterprise formation, innovation, and economic development.Private, nonprofit, and subsidized public efforts aimed at providing venture capital and stimulating high technology entrepreneurship must confront the fact that venture capital alone will not magically generate entrepreneurship and economic development. It is important that such efforts recognize the nonfinancial side of venture investing and attract experienced personnel who can tap into established entrepreneurial networks and secure coinvestors. More significantly, establishing public venture funding in an area lacking the requisite entrepreneurial climate or technology infrastructure may create a “catch 22” situation where locally oriented funds invest in bad deals or where venture capital is simply exported to established high technology regions.     

Venture capital in Western Europe

Western Europe is in the process of an entrepreneurial renaissance. An integral part of this renaissance is the emergence of a venture capital industry in Europe. Although the venture capital institution in Europe is very much modeled along the lines of its American counterpart, it is significantly smaller in size both in absolute terms as well as in relation to the size of the economy. Substantial differences in venture capital activity are also found to exist within Europe,it is most prevaient in the United Kingdom, France, and Netherlands. Surprisingly, it is less developed in West Germany, particularly given the size of this country's economy.Venture capital in Western Europe shares some characteristics with that in the United States. Its investment focus is in high technology, and syndication between funds is common. Unlike the United States, however, banks are a major source of venture capital funds. Surprisingly, in spite of the economic integration to which the European Community aspires, the mobility of venture capital across national boundaries is low.The authors try to explain differences in venture capital activity in several countries of the European Community by examining four aspects of each country's environment. In particular, the size of the technology sector, the cultural influence on entrepreneurial risk-taking, the government's policy to stimulate risk capital and entrepreneurship. and finally, the ability of venture-backed firms to turn to publicly traded markets as a source of future financing. One common factor shared by the three countries with the highest level of venture capital activity is the presence of a secondary stock market geared to the needs of a small, relatively new venture contemplating an initial public offering. The Unlisted Securities Market in the United Kingdom, the Seconde Marché in France, and the Parallel Market in the Netherlands serve these needs and provide the mechanism by which venture capitalists can liquidate their equity position after the venture is quoted on these financial markets. To the venture it provides access to public financing for funding continued growth.In the United Kingdom and Netherlands, the business enterprise has historically been regarded as a tradeable entity and hence the concept of ownership by passive investors is well accepted. In France, where this is a relatively recent phenomenon, the government has played a strong role in stimulating an interest in stock market investing in general. It has also created some extremely attractive fiscal incentives for investors in venture capital funds.     

集团财务公司开展投融资业务的探讨

本文探讨了集团财务公司开展投融资业务的相关内容.包括对金融机构权投资;有价证券投资;同业拆借业务;信贷资产转让业务;票据转贴现业务等方面的开展与创新.     

Incremental impact of venture capital financing

This paper investigates the differences in the return generating process of venture capital (VC)-backed firms and their peers that operate without VC financing. Using a unique hand-picked database of 990 VC-backed Belgian firms and a complete population of Belgian small and medium-sized enterprises (SMEs), we focus on the extent to which the presence of a VC investor affects the sensitivity of a firm’s returns to the changes in the capital structure, in the operating cycle, and in the industry dynamics. The differences may stem from the (self-) selection of better companies into VC portfolios, from the venture capitalists’ (VCs) value-adding activities, and/or from both. We examine these factors in the context of a complex simulation procedure which allows separating selection from value-adding when traditional approaches are difficult to implement. Our results indicate that VC-backed firms are able to extract more rent from the changing industry conditions and from the optimizations in their capital structure. The presence of VCs in the firm’s equity seems to have only a marginal effect on the operating cycle efficiency. Overall, the results are suggestive of the value-adding being the main driver of the VC-backed firm’s performance.     

How venture capital firms differ

Four potential sources of differences between venture capital (VC) firms were examined—venture stage of interest, amount of assistance provided by the VC, VC firm size, and geographic region where located. Through a questionnaire, 149 venture capitalists provided data about their firms, about what they look for in evaluating an investment, and about how they work with a portfolio company following an investment.Firms were divided into four groups based on venture stage of interest. The earlier the investment stage, the greater the interest in potential investments built upon proprietary products, product uniqueness, and high growth markets. Late-stage investors were more interested in demonstrated market acceptance.There were no differences by stage regarding the desired qualities of management. However, after the investment was made, earlier stage investors attached more importance to spending their time evaluating and recruiting managers. Earlier stage investors sought ventures with higher potential returns—a 42% hurdle rate of return for the earliest stage investor versus 33% for the late-stage investor.Late-stage investors spent more time evaluating a potential investment. However, after the investment was made, there was little difference in the amount of time spent assisting the portfolio company. There were, however, differences in the significance that VCs attached to particular post-investment activities. Firms were split into three groups based upon the amount of time the VC spent with a portfolio company after an investment was made as lead investor. The most active group averaged over 35 hours per month per investment, and the least active group averaged less than seven hours.The difference in assistance provided was not strongly tied to differences in investment stage of interest. There were major differences in the importance the VCs attached to their post-investment activities. Not surprisingly, high involvement VCs viewed their activities as more important.Based upon the amount of capital they managed, firms were also split into three groups. Average fund size varied from 278 to 12 million dollars. The larger firms had more professionals and managed more money per professional. The large firms provided the least, and the medium-sized firms the most, assistance to portfolio companies. Large firms also made larger individual investments. Even though they invested over half their funds in late-stage investments whereas smaller firms focused on the earlier stages, the large firms were still a major source of early stage financing.There were no differences between geographic regions in the proportion of investments where the venture capital firm served as lead investor. There were, however, major regional differences in investment stages of interest. Also differences were observed between regions that were not a result of differing size and investment stage.     

Industry and startup experience on entrepreneur forecast performance in new firms

I theoretically develop and empirically investigate the role of industry and startup experience on the forecast performance of 2304 entrepreneurs who have started new businesses. Using the Kauffman Firm Survey I show that industry experience is associated with more accurate and less biased entrepreneur expectations. Further, the benefit of industry experience on entrepreneurial forecast performance is greater in high-technology industries. These findings are consistent with knowledge of the setting informing entrepreneurial decision making, especially in highly uncertain environments. However, in contrast to the prevailing view in the literature, I find no significant evidence that startup experience improves entrepreneurial forecast performance.     

Human capital in the internationalization of family firms

Research concerning the influence of human capital (HC) on internationalization strategies typically highlights skills displayed by business executives. This article is one of the few studies that examines the values, attitudes, and capabilities related to the HC of international companies. Our study attempts to understand the role that HC plays in the international commitment (IC) achieved by family and nonfamily firms and whether the HC of family firms (FFs) can be considered a source of competitive advantage in pursuing an international strategy. Partial Least Squares method is used for analyzing data collected from 270 Spanish firms. Results show HC differs between family and non‐FFs and plays a crucial role in the international strategy of FFs. Specifically, professional experience, training, and educational level, the degree of market and industry knowledge, specific skills to work in international markets, and concern for employees are superior in FFs, resulting in the achievement of higher levels of IC when compared to non‐FFs. The results should encourage managers and/or owners of these companies to exploit and effectively govern specific human resource strengths when they enter and experience growth in other markets.     

Human capital and wages in exporting firms

This paper studies the link between the education level of workers, export performance and wages. We argue that firms may escape intense competition in international markets by using high skilled workers to differentiate their products. This story is consistent with our empirical results. Using a very rich matched worker-firm longitudinal dataset, we find that there is a weak negative direct effect of exporting on wages, but an interaction term between export intensity and skill intensity has a positive impact on wages. That is, we find an export wage premium, but only in firms where the skill intensity is sufficiently high.     

Venture capital in Europe: social capital,formal institutions and mediation effects

Venture capital (VC) as an industry has existed for more than 50 years, yet it has only moderately developed beyond the USA despite numerous trials of governments to foster it. Vast research endeavors have been carried out to understand the antecedents, barriers, and facilitators of the industry. However, the focus has been rather limited and accounted almost exclusively for formal features of institutional environments, leaving the informal dimensions unexplored. This paper tries to close that gap. Based on longitudinal country-level data on 18 European countries, we first explore if the “usual suspects,” mostly embodied in reformable formal institutions, do play a role in the European context. We also investigate if informal institutions, and in particular social capital, may exert a prominent effect. In this respect, we found that the impact of social capital on VC activity is indeed indirect, through determining those structural formal institutions which in turn significantly affect VC activity. These findings contribute to the literature on VC and inform European policy makers on the most promising channels for creating a prosperous institutional environment for the financing of innovative start-ups.     

Venture capital investing for corporate development objectives

There is a significant new player emerging in the venture capital world whose participation is changing the way that the venture business is done. Domestic and foreign corporations have discovered that investing in venture capital adds a new dimension to their corporate development strategies and can also make an outstanding return on investment.Armed with serious amounts of cash, aware of the value of an association with their name and frequently possessing marketing power that a small company covets, corporations are competing with venture capitalists for the best deals. Obtaining a “corporate partner” is now an accepted part of a small company's financing strategy.For the corporate development executive, this activity provides a useful tool to widen the spectrum of participation in new technologies while retaining the entrepreneurial drive and reducing the cost and exposure of new ventures. However, it is not a panacea for growth and caution should be exercised to avoid creating unrealistic expectations.Both entrepreneurs and venture capitalists welcome this source of later-stage capital, providing it minimizes equity dilution and assists in product development, marketing and liquidity for their investment. However, it is a competitor for the venture capitalists in sourcing deals and a potential adversary for the entrepreneur when objectives clash. Additionally, entrepreneurs and venture capitalists often are suspicious of the corporation in the small company's boardroom.The objective of most corporations is the strategic benefits that can result from venture capital investing, such as acquisitions, technology licenses, product marketing rights, international opportunities and a window on technology. However, this objective is frequently mixed with a financial return objective and can lead to a confused strategy.Participation by corporations can take many different forms but usually begins with investments in several venture capital funds as a limited partner and evolves into direct investments in venture companies. Formation of a venture development subsidiary by the corporation is a demonstrated way to maximize the strategic rewards. If financial return is the only objective, then a stand-alone venture fund is the best vehicle.The most important factors for the strategic success of a corporate program are the creation of a high-quality deal stream and the use of outstanding people to interface between the corporation and the venture capital world. In addition, there has to be a long-term commitment, active involvement and a carefully devised internal communications strategy to promote and protect the program.Creation of a formal venture development subsidiary is probably the best way to maximize the strategic objectives. Lubrizol Enterprises operates as such a subsidiary of The Lubrizol Corporation and utilizes venture capital investing, acquisitions, partnerships, and contract research to develop strategic business units based on leading-edge technologies.     

European integration: Venture capital in Europe

The Single European Act has stimulated venture capital in Europe, especially in cross border transactions. The European Community recognizes the importance of venture capital and has developed programs to further nurture this industry.     

Upper echelons and portfolio strategies of venture capital firms

In this study we analyze how the composition of the top management team (TMT) influences the portfolio strategy choice in venture capital (VC) organizations. We develop a model of risk perception to investigate how education and experience of TMT members impact whether VC organizations invest with a focus on early stage ventures or not, specialize or diversify across industries, and invest with a broad or narrow geographic scope.Evaluation of data on TMTs and portfolio strategies of 136 European VC firms revealed that VC firms with higher proportions of TMT members with science/engineering education and entrepreneurial experience more likely invest with an early stage focus. Furthermore, TMTs with more management education diversify their portfolios more across industries. Finally, the more international experience TMT members of VC organizations have, the broader the geographic scope of investees. We discuss the implications of our findings for the VC literature.     

The structure of the investment networks of venture capital firms

Venture capital firms are linked together in a network by their joint investments in portfolio companies. Through connections in that network, they exchange resources with one another. The most important of those resources are the opportunity to invest in a portfolio company (good investment prospects are always scarce), the spreading of financial risk, and the sharing of knowledge. All venture capitalists operate in very uncertain environments, none more so than the one confronting high innovative venture capitalists, HIVCs,¹ that specialize in investing in high innovative technology companies. The most uncertain of all their investments is a high-technology start-up with nothing more than a product in the head of the founder. There is uncertainty about the talent of the entrepreneur, the market need for the product, the development of a saleable product, the raising of second-round financing for working capital and expansion; the manufacturing of the product, competitors' responses, and government policies such as capital gains tax and ERISA rules, to name some of the major components. It is a formidable list. Indeed, it is hard to name a segment of any other industry that bears more uncertainty than HIVCs.A venture capital firm copes with uncertainty by gathering information. This research shows that the amount of coinvesting by a firm depends on the degree of uncertainty it faces. The greater the uncertainty, the greater the degree of coinvesting.By examining how venture capital firms were connected by their joint investments, it was found that the top 21 HIVCs comprise a tightly coupled network. And of that group, none is more tightly bound than the nine HIVCs located in California. In contrast, the group of top 21 firms that invest mainly in low innovative technology companies, LIVCs, is more loosely bound. HIVCs are more tightly bound together because they shoulder more uncertainty and therefore have a greater need to share information with one another.The practical implications of this study are as follows: Venture Capitalists. It is vital to be well-connected to other venture capital firms. They are important sources of information and investment opportunities. For HIVCs, the California group is central in the network, so links to them are valuable. Communications in a tightly coupled system are swift, so it is likely that information is disseminated very quickly among members of the group. It probably facilitates the setting of a market rate for venture capital. A disadvantage of a tightly bound system is that information flowing among the members has a redundancy and sameness about it, so to ensure a supply of fresh information, members should have as many links as possible to other organizations and individuals besides venture capitalists. Entrepreneurs. When entrepreneurs submit a proposal for funding to venture capital firms, they can assume that news will spread fast to other firms. Thus, they should not use a bird-shot approach; rather, they should select their targets with rifle precision. The proposal should be submitted to a few firms that are known to specialize in the type of product or service that the entrepreneur is planning to make. Entrepreneurs should be concerned about more than the price of the deal. When the top 61 firms invest in a portfolio company, they bring information, contacts, and “deep pockets” to the companies in which they invest. Those factors are significant in nurturing a growing company. Policy Makers. The networks of HIVCs and UVCs are quite different. The HIVCs cluster around oases of high-technology entrepreneurship in the northeast and California, whereas the LIVCs are more evenly spread throughout the U.S.A. HIVCs are located almost exclusively in the so-called “bi-coastal regions of prosperity.”This study found cliques among the venture capital firms. But it found no evidence that the top 61 firms exclude other venture capital firms from their coinvestments of first-rounds of capital. More research is needed before conclusions can be drawn about the power and influence of the top firms. Researchers. In a recent article, Granovetter (1985) suggests that if we are to explain economic behavior, we must understand the networks in which transactions are embedded. This research shows that the networks formed by the syndicated coinvestments of venture capital firms may help us to explain their behavior. A general model for coinvestment networks that is developed in this article is applicable to analysis of syndicated coinvestments not only of venture capital firms, but of investors and lenders in general.     

FDI,market signal and financing constraints of firms in China

On the basis of an augmented Euler equation, we use firm survey data provided by the World Bank to investigate the impact of FDI (foreign direct investment) on the financing constraints of firms in China. First we calculate the forward and backward linkages of FDI. Then through empirical estimation, we find that only private firms have financing constraints and that the incoming FDI alleviates this situation. Private firms with more foreign capital shares or having stronger vertical linkage with FDI can get financial resources easily. Furthermore, industries hosting a large amount of FDI are favorite clients of the financial institutions because they are usually much more competitive in the world. As a result, the private firms in these industries also have easier access to financial resources. In the financial market, FDI is a helping hand that reduces the information asymmetry between firms and financial institutions. Financial resources go where FDI goes, which to some extent improves the allocation efficiency.