An examination of the effects of venture capitalists on the alliance formation activity of entrepreneurial firms

Research Summary : Alliances offer benefits such as access to capital, knowledge, and markets. Yet, due to their lack of legitimacy, entrepreneurial firms find it challenging to engage in alliances. Thus, it is important to examine which factors may drive alliance formation for entrepreneurial firms. We examine whether the presence of venture capitalists (VCs) is such a factor. Whereas current research suffers from endogeneity concerns that make the comparison of VC- and non-VC-backed firms problematic, our empirical design reduces this problem. Overall, we find that the presence of a VC and a VC's experience with taking firms public are positively associated with entrepreneurial firms’ alliance formation, and that VCs are more active in forming an alliance when the exit outcome is an acquisition, rather than going public. Managerial Summary : Alliances can be of fundamental importance to the growth of entrepreneurial firms. However, because entrepreneurial firms hold limited resources, their access to alliances may be limited. We study whether entrepreneurial firms backed by venture capitalists (VCs) are more likely to enter into alliances than firms without VC backing. A major problem with this sort of analysis is that VCs may cherry pick the best firms, which in turn are more likely to engage in alliances to begin with, irrespective of VCs. Accordingly, we control for the quality of funded firms, and therefore, isolate the VCs’ contribution to alliance formation. In doing so, we find support for the importance of the role VCs play in entrepreneurial firms’ alliance formations.     

Entrepreneurial finance meets organizational reality: comparing investment practices and performance of corporate and independent venture capitalists

This paper investigates the effect of compensation of corporate personnel on their investment in new technologies. We focus on a specific corporate activity, namely corporate venture capital (CVC), describing minority equity investment by established‐firms in entrepreneurial ventures. The setting offers an opportunity to compare corporate investors to investment experts, the independent venture capitalists (IVCs). On average, we observe a performance gap between corporate investors and their independent counterparts. Interestingly, the performance gap is sensitive to CVCs' compensation scheme: it is the largest when CVC personnel are awarded performance pay. Not only do we study the association between incentives and performance but we also document a direct relationship between incentives and the actions managers undertake. For example, we observe disparity between the number of participants in venture capital syndicates that involve a corporate investor, and those that consist solely of IVCs. The disparity shrinks substantially, however, for a subset of CVCs that compensate their personnel using performance pay. We find a parallel pattern when analyzing the relationship between compensation and another investment practice, staging of investment. To conclude, the paper investigates the three elements of the principal‐agent framework, thus providing direct evidence that compensation schemes (incentives) shape investment practices (managerial action), and ultimately investors' outcome (performance). Copyright © 2010 John Wiley & Sons, Ltd.     

Facing Constraints to Growth? Overseas Chinese Entrepreneurs and Traditional Business Practices in East Asia

Overseas Chinese entrepreneurs in East Asia have achieved notable success in a number of traditional, slow growth industries. This success has been ascribed to distinctive aspects of Chinese business culture that favor alacrity, adaptability, networking, and close control of firm operations. Recently, some have suggested that the same characteristics that have promoted these firms' success in slower growth sectors may hinder firm success in faster growth sectors of the economy. To explore this proposition, we conducted in-depth interviews with forty-one entrepreneurs, venture capitalists, and government officials all working with fast growth entrepreneurial firms in East Asia. The results suggest that, in general, Overseas Chinese entrepreneurial firms also follow many of the traditional business practices associated with Overseas Chinese firms. Most venture capitalists and government officials in the sample expressed concern that these practices are hindering the building of firms that can be taken public and experience the high growth consistent with vibrant entrepreneurial firms. The results also showed that the Overseas Chinese entrepreneurs sampled are aware that some of these characteristics may be creating constraints to faster growth and, at the behest of venture capitalists and government officials, are sometimes making the changes thought necessary to create faster growth firms.     

Controlling and combining resources in networks — from Uppsala to Stanford, and back again: The case of a biotech innovation

This paper explores how resources are controlled and combined in a biotech network that spans from Uppsala, Sweden, to Stanford, USA. A case study is reported that describes and analyses how the original discovery, developed at the Department of Genetics and Pathology at Uppsala University, Sweden, was combined with other innovations at Stanford University, California, and under the influence and control of several different actors, including venture capitalists, were exploited within a newly founded company, ParAllele.The paper analyzes the resources that are created, combined and controlled in the network around these scientific discoveries and the company hosting them. This analysis shows how actors are using and are exposed to different control mechanisms, such as action, results and personnel controls, in the innovation process. Our discussion emphasizes how the involved actors apply various types of controls on resources in order to reach their objectives. Forms of control that both entail mobilizing other actors and preventing actions in the emerging network are of importance. We conclude the paper by pointing out the features of control in innovation processes as well as obstacles to control in a business network setting.     

Exploration and Resource Commitments in Unequal Partnerships: An Examination of Corporate Venture Capital Investments

While established firms' relationships with external ventures may have significant strategic benefits, the realization of such benefits is fraught with considerable uncertainty. The real options and interorganizational learning literatures present an interesting trade‐off for established firms regarding commitment of resources in a partnership. This study seeks to enhance our understanding of how firms manage these trade‐offs when committing resources to external venturing initiatives. We examine the magnitude of resources initially committed by an established firm to an external venturing partnership in the context of corporate venture capital (CVC) investments. While a real options approach suggests that resource commitments should be lowered in the presence of uncertainty regarding realization of benefits, the interorganizational literature emphasizes that resource commitments may be essential for building quality relationships that expedite learning. Corporate investors, who invest in new ventures in order to gain strategic benefits, face higher uncertainty when their investment objectives involve greater exploration. However, greater exploration also increases investors' need to learn from their portfolio ventures. We, therefore, predicted that the degree of exploration would have a U‐shaped relationship with the investor's resource commitment in a venture. We also expected that factors that serve to decrease the investor's uncertainty, i.e., investor experience diversity and venture affiliation to prominent venture capitalists, would moderate the U‐shaped relationship between exploration and resource commitment. The predictions of the study are tested on a sample of 248 initial investments in private ventures made by incumbent firms in the computer, semiconductor, and telecommunications industries between 1996 and 2000. We find some support for our hypotheses. This study contributes to the external venturing literature on CVC investments by examining the determinants of the magnitude of resource commitment to new ventures, and integrates real options perspective, which advocates low resource commitments under uncertainty, with the organizational learning literature, which argues for greater resource commitment to secure partner cooperation. The results of this study reveal interesting insights into how CVC investors manage individual investments to generate strategic benefits.     

Why do venture capital firms exist: An institution-based rent-seeking perspective and Chinese evidence

This paper is a theory development to Amit, Brander, and Zott (1998, Journal of Business Venturing, 13: 441-466) on the nature of venture capital firms. In their paper, the authors argue that venture capital firms exist because they fill a market niche by developing the ability to overcome extreme information asymmetry embedded in high-risk entrepreneurial firms. However, this theory encounters difficulties in explaining a variety of organizational and behavioral divides among venture capitalists in different contexts and over time. In this paper, we apply the institution-based view to reveal the nature of venture capital. We argue that it is the venture capitalists’ capability to capture economic rents from the institutional environment that distinguish them from other financial intermediaries. We show the connection of our perspective with the conventional view as well as the usefulness of this theory in explaining the development of the venture capital industry in China.     

创意设计产业的风险投资评价指标体系研究

近年来,创意设计产业蓬勃发展,逐渐成为风险投资青睐的新兴领域.然而,创意设计产业是典型的高风险投资行业,为了控制风险获取高收益,综合评价项目对于风险投资者而言尤为重要.针对国内外缺少该领域研究的现状,本文简要分析了创意设计产业风险投资项目的特点,并结合层次化分析法(AHP)构造了一套风险投资评价指标体系,对于指导风险投资者进行投资决策具有实用价值和指导意义.     

How law,politics and transnational networks affect technology entrepreneurship: Explaining divergent venture capital investing strategies in China

This article identifies three distinct patterns of investment behavior by venture capital firms investing in technology sector start-ups in China. The first pattern is the service-oriented, technology-light investment behavior exhibited by the foreign venture capitalist firms not founded by ethnic Chinese. The second pattern is the technology creation investment pattern exhibited by foreign firms founded by ethnic Chinese and embedded in ethnic Chinese communities. The third pattern consists of local state-funded Chinese venture capital firms that choose either to invest in state-directed projects or opt out of investing in technology start-ups entirely. What explains the differences in behavior between the strictly foreign and the ethnic Chinese-embedded foreign firms are the different legal environments in which these firms honed their skills. The different learned experience gained from operating in different environments explains why the foreign firms avoid investing in technology-generating activities in China whereas the ethnic Chinese firms are willing to do so despite China’s notorious weak intellectual property rights regime. The political factors influencing the distribution of finance in China explain the behavior and essential failure of the local state-run venture capital firms. These findings demonstrate that several distinct, separate and non-clashing institutional arrangements are concurrently operating within China and shaping the behavior of venture capital firms there.     

Learning to let go: Social influence,learning, and the abandonment of corporate venture capital practices

Research summary: This study examines the abandonment of organizational practices. We argue that firm choices in implementing practices affect how firms experience a practice and their subsequent likelihood of abandonment. We focus on utilization of the practice and staffing (i.e. career backgrounds of managers), as two important implementation choices that firms make. The findings demonstrate that practice utilization and staffing choices not only affect abandonment likelihood directly but also condition firms' susceptibility to pressures to abandon when social referents do. Our study contributes to diffusion research by examining practice abandonment—a relatively unexplored area in diffusion research—and by incorporating specific aspects of firms' post‐adoption choices into diffusion theory. Managerial summary: When do firms shut down practices? Prior research has shown that firms learn from the actions of other firms, both adopting and abandoning practices when their peers do. But unlike adoption decisions, abandonment decisions need to account for firms' own experiences with the practice. We study the abandonment of corporate venture capital (CVC) practices in the U.S. IT industry, which has experienced waves of adoption and abandonment. We find that firms that make more CVC investments are less likely to abandon the practice, and are less likely to learn vicariously from other firms' abandonment decisions, such that they are less likely to exit CVC when other firms do. Staffing choices also matter: hiring former venture capitalists makes firms less likely to abandon CVC practices, while hiring internally makes abandonment more likely. Plus, staffing choices affect how firms learn from the environment, as CVC managers pay attention to and learn more from the actions of firms that match their work backgrounds; i.e., firms that staff CVC units with former venture capitalists are more likely to follow exit decisions of VC firms, while those that staff with internal hires are more likely to follow their industry peers. Our results suggest that firms wanting to retain CVC practices should think carefully about the implementation choices they make, as they may be inadvertently sowing seeds of abandonment. Copyright © 2015 John Wiley & Sons, Ltd.     

The extent and nature of heterogeneity of venture capital selection behaviour in new technology‐based firms

The success of technology transfer depends in part on new technology‐based firms (NTBFs) accessing venture capital (VC). Yet, little is known about venture capitalists' selection processes in this context. We examine the heterogeneity in the selection behaviour of VCs using a unique hand‐collected dataset comprising 68 European early‐stage high‐tech VC investors. We follow an inductive research design and use a conjoint analysis to decompose the investment decisions of VC investors. We identify three different clusters of VC investors: those who focus on technology (technology investors), those who focus on finance (financial investors) and those who focus on human capital (people investors). Technology investors attach more importance to the appropriability of the technology and contact with the entrepreneur than the other groups of VCs. For people investors, the human factors such as leadership capacities of the entrepreneur and the quality of the team are most important. Financial investors make their investment decision based on a limited set of factors such as ROI, growth and team completeness. Our results have important implications for NTBFs, venture capitalists and universities involved in technology transfer through spin‐off companies.     

Testing a model of reasoned risk‐taking: governance,the experience of principals and agents,and global strategy in high‐technology IPO firms

Research on the governance of risky ventures, like the initial public offerings (IPOs) of high‐technology firms, has focused primarily on the relationship between governance mechanisms and firm performance. While such an emphasis is clearly important, it does little to shed light on potential relationships between governance and the strategies pursued by risky firms, nor does it take into account the complementary role of key stakeholders in affecting those strategies. To partially remedy this deficit we integrate agency and behavioral perspectives to develop a theory of ‘reasoned risk‐taking,’ whereby the nature of risks undertaken is a consequence of the interaction of governance mechanisms and stakeholder characteristics. We demonstrate our theory by predicting when corporate governance should be associated with strategic risk‐seeking beyond a firm's technical core—as seen in the degree to which it has expanded internationally. Surprisingly, even though venture capitalists (VC) are risk specialists, we find that technology‐based IPO firms are less likely (i.e., a negative relationship) to have extensive global sales when they are backed by a VC. In support of our reasoned risk‐taking theoretical framework, we find that VCs are indeed risk‐seeking when VC backing is complemented by the international experience of their board appointees, top management team (TMT) members, or both. IPO firms with significant insider ownership are similarly global risk‐seekers, and those effects are strongest with an internationally seasoned board and TMT at the helm. Copyright © 2003 John Wiley & Sons, Ltd.     

Which ties matter when? the contingent effects of interorganizational partnerships on IPO success

This paper investigates the contingent value of interorganizational relationships at the time of a young firm's initial public offering (IPO). We compare the signaling value to young firms of having ties with two types of interorganizational partnerships: endorsement relationships such as those with venture capital firms and investment banks, and strategic alliance partnerships. We propose that, under different equity market conditions, potential investors in an issuing firm attend to different types of uncertainty; attention to these different types of uncertainty affects investors' perceptions of the relative value of a young firm's different kinds of endorsements and partnerships and, hence, IPO success. Results from a sample of young biotechnology firms show that ties to prominent venture capital firms are particularly beneficial to IPO success during cold markets, while ties to prominent investment banks are particularly beneficial to IPO success during hot markets; a firm's strategic alliances with major pharmaceutical/health care firms did not have such contingent effects. Implications for understanding the contingent value of interorganizational ties are discussed. Copyright © 2003 John Wiley & Sons, Ltd.     

技术邻近、本地风投参与对地理邻近的调节作用研究

本文收集了2014年发生的风险投资交易事件信息，采用配对设计，运用Relogit回归来研究技术邻近和本地风险投资参与对风险投资地理邻近的调节作用。实证研究发现，技术邻近和本地风险投资均显著减弱地理距离对风险投资交易达成的反向影响。随着地理距离的增大，风险投资交易达成的可能性减小，风险投资机构与创业企业之间的技术邻近、联合投资事件中本地风险投资的参与均有助于缓解地理距离给投资交易达成带来的不利影响。研究结论对期望获得远距离风险投资的创业企业和风险投资不发达地区的地方政府均有一定借鉴价值。     

信息技术企业与风险资本的空间共生研究

信息技术企业与风险资本的空间共存至关重要。课题以1994～2014年获得风险资本融资的IT企业为样本,运用空间滞后模型,研究距离IT企业一定空间范围内风险投资机构数量、同行数量对IT企业风险资本融资金额的影响。研究发现,IT企业周围100公里以内、100～200公里、200～300公里、300～400公里范围内的风险投资机构数量均正向影响其融资金额,边际效应最大的是200～300公里范围,最小的是300～400公里范围。IT企业周围100～200公里以内和200～300公里范围内的同行数量正向影响其融资额,100公里以内和300～400公里范围内的同行数量则反向影响其风险资本融资额,尤其是100公里范围内同行的增加使其风险资本融资额大幅减少。研究结论为政府支持本地风险投资的发展提供了证据,同时也为IT企业的选址有借鉴意义。     

Effects of corporate governance on risk taking in Taiwanese family firms during institutional reform

Can internal corporate governance mechanisms (such as boards of directors) and external corporate governance mechanisms (such as institutional reform) promote risk-taking behavior in family firms? This paper argues that conflicts between majority and minority owners, known as principal–principal conflicts, and cronyism in the board of directors affect firm risk taking. Moreover, institutional corporate governance reform to appoint outside directors may not have an immediate effect on reducing these problems. Based on a sample of family firms in Taiwan, we find that outside directors reduce the negative relationship between family ownership/involvement and risk taking. However, when their influence is examined further, it is found that in those sample firms that went public after institutional reform, outside directors did not improve the relationship between family ownership/involvement and risk taking.     

Governance,ownership structure,and performance of IPO firms: the impact of different types of private equity investors and institutional environments

This paper examines performance effects of ownership concentration and two types of private equity investors (venture capitalists and business angels) in firms that have recently undergone an initial public offering (IPO) in the United Kingdom and France. We expand and contextualize nascent understanding of multiple agency theory by examining heterogeneity of private equity investors and by suggesting that multiple agency relationships are affected by different institutional contexts. We employ a unique, hand‐collected dataset of 224 matched IPOs (112 in each country). Controlling for the endogeneity of private equity investors' retained share ownership, we find support for the agency theory argument that concentrated ownership improves IPOs' performance. The research also shows that the two types of private equity investors have a differential impact on performance, and the legal institutions in a given country moderate this impact. Copyright © 2009 John Wiley & Sons, Ltd.     

Calls on high-technology: Japanese exploration of venture capital investments in the United States

The strategic logic of Japanese high-technology venture capital investment reveals the existence of an implicit call option, or ‘shadow option’, on new technology. This option is exercised by further investment in product development, manufacturing and distribution. The process is described with reference to a comparative study of Japanese and U.S. venture capital firms. Similarities and differences between the two groups are reported, and a conceptual model of Japanese option strategy is formulated. The implications for our understanding of Japanese strategy and for strategic management theory are discussed.     

Network orchestration for value platform development

The traditional firm and product-centric view of platforms is changing. Platforms are increasingly developed around value that is co-created with a network of actors. In such settings, lead firms shape their environments and develop value platforms through network orchestration. This study examines how lead firms mobilize network relationships to support and build novel value platforms. The research adopts a multiple case study methodology, investigating the development of six value platforms in network settings within Europe. A large-scale interview program over several years was conducted. The findings unravel practices constituting four overarching network orchestration mechanisms in the value platform development context; envisioning, inducing innovativeness, legitimizing, and adjusting. The study explains the relationships and interplay between the orchestration mechanisms and articulates theoretical and managerial contributions.     

Patenting and the early‐stage high‐technology investor: evidence from the field

We discuss the importance of patenting to the venture capital investor in high‐technology firms. While literature suggests that patenting will have an impact on the nature and level of investment, the investors themselves are keen to suggest otherwise. We investigate this issue by the use of new primary‐source empirical data, gathered by fieldwork methods. Our results help explain a link between the existence of patenting and the level of investment made. We further support our analysis with illuminating quotes from investors currently active in the field.     

独立董事的政治关联与公司绩效

以2006年～2007年间我国A股上市公司为研究对象,实证检验了我国上市公司中独立董事的政治关联是否具有业绩后果。研究发现,独立董事政治关联程度与企业以托宾Q值度量的业绩存在显著的正相关关系,该正相关关系在第一大股东为国有股的上市公司中表现尤为明显。该结果表明,我国上市公司独立董事的政治关联是一种有利于增加企业价值和提升企业业绩的至关重要的政治资源,对于第一大股东为国有股的上市公司,该政治资源的业绩后果更明显。