The export intensity of venture capital backed companies

In this study we examine how venture capital (VC) firms influence the export behavior of their investee companies. VC firms perform an important governance function for investee companies by providing monitoring and value-added activities. Drawing on agency theory, the resource-based view of the firm and governance life-cycle theory we hypothesize that the relationship between VC governance resources and investee exporting behavior is moderated by investment stage. Employing a sample of 340 VC-backed firms, our results confirm this hypothesis. Monitoring resources are most effective in promoting export behavior for late-stage ventures and value-added resources in promoting export behavior in early-stage ventures.

Internationalization of an academic invention through successive science-business networks: The case of TAVI

The aim of this paper is to explain how new technology ventures move, grow, and scale. Such ventures internationalize much faster than depicted by the traditional Uppsala model (Johanson and Vahlne, J Int Bus Stud 8:23–32, 1977; Johanson and Vahlne, Mark Rev 7(4), 1990; Johanson and Vahlne, J Int Entrep 1:83–101, 2003; Johanson and Vahlne, Manag Int Rev 46:165–178, 2006; Oviatt and McDougall, J Int Bus Stud 25:45–64, 1994). According to the Uppsala model, the main reason it takes time is that entrepreneurs need to build networks and learn. Many scholars have investigated how they may be able to learn faster and grow networks more effectively. While these explanations contribute to a better understanding of the process, they appear disturbingly insufficient. By means of an in-depth case study, we aim at identifying how learning and network-building constraints may be circumvented. We have investigated the internationalization process of an invention at a Danish university hospital that became a new technology within minimally invasive heart surgery. While the invention took place in the periphery of the international medical network, the venture circulated to the most competent international science-business networks to mobilize resources and competencies. We found that its ability to succeed resulted from its roots in international academic networks and its connecting to core nodes in these as well as in adequate business networks—including, in particular, Venture Capital firms that are in the business of developing and scaling such technology ventures. We also found that the innovation process evolved through phases that called for different resources and capabilities. It thereby offered opportunities for actors, networks, and companies that control such capabilities to move in to take control and pull the venture through the next phase. The process is less like a long distance run, and more like a relay race. This radically reduces the need to learn as the new venture expands and scales.     

Does venture opportunity variation matter? Investigating systematic process differences between innovative and imitative new ventures

The central thesis in the article is that the venture creation process is different for innovative versus imitative ventures. This holds up; the pace of the process differs by type of venture as do, in line with theory-based hypotheses, the effects of certain human capital (HC) and social capital (SC) predictors. Importantly, and somewhat unexpectedly, the theoretically derived models using HC, SC, and certain controls are relatively successful explaining progress in the creation process for the minority of innovative ventures, but achieve very limited success for the imitative majority. This may be due to a rationalistic bias in conventional theorizing and suggests that there is need for considerable theoretical development regarding the important phenomenon of new venture creation processes. Another important result is that the building up of instrumental social capital, which we assess comprehensively and as a time variant construct, is important for making progress with both types of ventures, and increasingly, so as the process progresses. This result corroborates with stronger operationalization and more appropriate analysis method what previously published research has only been able to hint at.

Joint Venture Conflict: The Case of Thai International Joint Ventures

ABSTRACT

International Joint Ventures (IJVs) have become an important means of market entry for many firms, particularly those seeking entry into Asia (Lin and Germain, 1999 Lin, X. and Germain, R. 1999. Predicting international joint venture interaction frequency in U.S.-Chinese ventures. Journal of International Marketing, 7(2): 5–23. [Web of Science ®] , [Google Scholar]). As such, it is important to understand what causes some IJVs to fail and others to succeed. This study examines the relationship between partners' needs, commitment, control, and conflict between the IJV partners in a developing country of South East Asia. The findings revealed that IJV inter-party conflict was significantly influenced by all three variables, namely, partners' needs, commitment and control thereby providing support for previous research in a different national setting.     

Assessing economic value added by university-based new-venture outreach programs

A new-venture development office was set up in a university to solicit, screen, and allocate community ventures into upper-level undergraduate and graduate project courses. Innovative ventures in the early stages of development were allocated according to: 1) the project requirements of different courses and 2) the assessed needs of the ventures themselves. During 1984, 89 different projects with a weighted average of 125 manhours per project were run through the new-venture office. Students who conducted the projects included law students, industrial-design students, and a few undergraduate commerce students, although the majority of the work was done by second-year MBA students. Most of the MBA students were parttime students holding middle-management positions and having five or more years of relevant business experience. Projects were run through twelve different courses and a seed-capital conference. The program was conceptualized and coordinated by a number of professors teaching within an entrepreneurship concentration in an MBA program. Early in 1985, a telephone survey of 50 of the 63 entrepreneurs who had projects in the program was completed. These people were asked to systematically and realistically assess the resulting net benefits to their ventures along a number of different prespecified dimensions. The total value added was computed to be $1.75 million (CDN). which stands in contrast to the direct, out-of-pocket cost of the program, which was only $75,000 (CDN).The individual dimensions of value added that were measured included:

• •• Time gained or saved in advancing their new venture;
• •• Knowledge (understanding) gained of new-venture development;
• •• Information added of use in pursuing their new venture;
• •• Contacts made in support of their new venture;
• •• Strategic changes made; and
• •• Overall value of the experience.

Additionally, respondents were asked to report whether or not they had secured new capital injections, increased or decreased employee levels, or made structural advances in their ventures. Rather than assume that the program was the primary instigator of all such changes, the respondents were asked to assess the relative impact of the program along appropriate dimensions.The program was perceived to have had a significant influence on most of the dimensions measured. A summary of the major results includes:

• •• Average value added of time saved or gained: $6,097.50;
• •• Average valeu added of new knowledge about venture development: $9, 389.47;
• •• Average value added of new information added: $6,293.48;
• •• Average value added of new contracts made: $7, 238.89;
• •• Average value added of strategy changes: $16,937.50;
• •• Average value added of overall involvement in the program: $37,269.00;
• •• Net employment generated: 20.4 FTE; and
• •• New capital raised: $5.1 million.

Certain shortcomings of the research are discussed, including the validity and reliability of the value added measures. Research is continuing to validate the findings and refine the program.     

Corporate venturing: alternatives,obstacles encountered,and experience effects

In this study of a relatively small number of corporate executives with line experience in corporate venturing, some clues are uncovered that could help those corporations contemplating the initiation of acquisition, joint venturing, or corporate start-up activities to avoid or overcome the obstacles that our sample of managers encountered.The preliminary indications are;

• 1.1. Joint ventures appear to be a highly useful way of starting off in venturing activity while at the same time reducing the initial risk.
• 2.2. The excutives in this sample indicated that experience at venturing resulted in improvement in venturing performance, but only after several venture attempts. From this observation, two suggestions appear reasonable: 1) Start venturing with few relatively small ventures and keep ventures relatively small until experience is gained. Start perhaps with joint ventures to learn your way in and “graduate” to grass-roots start ups once significant learning has taken place; and 2) The experience gained will reside in people who may have been part of an unsuccessful venture, perhaps several unsuccessful ventures. If this experience is to be useful, the people who have gained it need to be retained and recycled to other new ventures.
• 3.3. Although some of the obstacles perceived by the executives diminish with experience, others do not. Regardless of experience, inability to plan for new ventures is a recurrently cited obstacle, as is the inability of the corporation to provide adequate support to the venture.

The last point may be the most significant observation in this study. Prevailing corporate values call for the ability to plan and to meet the plan as one of the primary measures of managerial competence. New ventures, however, rarely conform to plan, especially the quantitative projections. As a result, corporate support either dwindles when plans are not achieved or desperate spending efforts are made to achiev unachievable planned results, which often results in large losses. Very different planning methods are needed for ventures, methods that, in the highly uncertain surroundings of venturing activity, address what realistic corporate expectations should be, how progress should be measured and venture managers evaluated, and in what ways and at what times support will be provided by the parent corporation. These are discussed in the main body of the article.     

Contours of development

New ventures seem to suffer more difficulties and business failures than do established firms. Also, there is a pattern to the mortality, with most newly founded businesses lasting only a few years.Explanations of high failure rates in new ventures have often centered on “poor management,” or have postulated that firms chose inappropriate strategies for their markets and economic environments.The present article conceives of new venture mortality as similar in nature to patterns of development that we observe, for instance, in human embryos or in the formation of new species. That is, development is an inherently hazardous process.Some of the specific hazards of development are:

• 1.1. Generic Entry Barriers. It is generally not possible for a new firm or product to successfully enter an already crowded, stable market where competitors are strong. It is more feasible instead to enter a new or growing market; or to enter with a “substitute” product that is clearly superior to those existing; or to exploit an unnoticed market opening; or to develop competitive strengths “secretly,” without overtly challenging others in the industry.
• 2.2. Density of Developmental Hurdles. Any new entity must clear a sequence of important hurdles on its way to maturity, such as establishing a well-ordered office, a functional sales channel, etc. Failure at any one hurdle is potentially fatal, and a mathematical analysis shows that the likelihood of passing even 10 hurdles in a row is about one in three. The earliest hurdles tend to be the most difficult and to crowd more densely than later hurdles. Particularly troublesome are “phase changes” where a company first starts business or becomes one thing rather than another within a short period of time.
• 3.3. Amplification of Maturational Error. Any complex system that grows rapidly and is unable to predict the future perfectly is going to accumulate structural errors that become very difficult to remedy. This is a natural and inevitable developmental process, as the system grows in complexity and the flaw itself becomes a pillar of the system. If an imitator or competitor arrives soon afterward and spots the error, he or she will easily be able to retool and redesign a better system, whereas the first firm is stuck with old habits, tools, dies, and production methods.
• 4.4. Sequence and Control in Development. Every embryonic organism has a design template outlined in its DNA that is carefully followed. Both the developing fetus itself and the mother have monitoring and control mechanisms that trigger an abortion if the development process goes awry. New ventures lack such mechanisms. They are more susceptible to “developmental deviance,” likely to differ from the model successful corporation of their type.
• 5.5. Smallness and the Asymmetry of Luck. Small things are more subject to the whims of fate than big things. Amount of resources is the key. Because new ventures typically start off with scarce resources, a bad bounce can sink the company, and the probability of at least one such bad bounce is high.
• 6.6. Costs of Organizing. Like all of the larger-brained mammals, a new company, such as a medical supply firm, must learn through experience much of what it means to be mature. Costs associated with learning arrive just when the firm is most vulnerable and distracted by other challenges.

In one sense, the message of this article is good news, in that managers of failed enterprises need not assume all the blame. After all, if most new businesses do poorly, then failure is the average or typical case, and it makes little sense to say that the average manager is “poor.” The bad news is that, if our perspective is correct, managers of new ventures have less scope to influence the success of their enterprises than is commonly believed. The managerial recommendations that emerge are that new ventures are more likely to succeed to the extent that they: have sponsorship or capital, have managers with a range of experience in previous ventures, are given extra assistance of “shelter,” or can ensure a high probability of passing all of the hurdles faced by a new venture.     

Firm growth in the Swedish retail and wholesale industries

To identify the determinants of firm growth in the Swedish retail and wholesale industries during 2000–2004, we analyse a sample of 400 limited liability companies using quantile regression techniques. Firm growth was mainly found to depend upon time-invariant firm-specific effects, supporting Penrose's [1959 Penrose, E. 1959. The theory of the growth of the firm, 4, New York: Oxford University Press.  [Google Scholar]. The theory of the growth of the firm (4th ed.). New York: Oxford University Press] suggestion that internal resources such as firm culture, brand loyalty, entrepreneurial skills, and so on are important determinants of firm growth.     

After the cash arrives: A comparative study of venture capital and private investor involvement in entrepreneurial firms

Equity investments in entrepreneurial firms continue to grow in number and dollar amount from both venture capital and private investment sources. Increasingly, these two sources of capital play an important role in the development of new and existing entrepreneurial ventures. Due to the sometimes hurried attempt to turn their dream into reality, entrepreneurs may fail to consider similarities and differences in the value-added benefits supplied by venture capital firms (VCs) and private investors (PIs).Accordingly, the purpose of this study was to determine how initial relationships are established and maintained between entrepreneurs and their primary investors. Specifically, we asked entrepreneurs to assess characteristics of the relationship with their primary investor. We then contrasted the results between entrepreneurial firms that had received venture capital funding versus private investor funding. Differences were examined along the following lines:

• 1.• Levels of investor involvement in entrepreneurial firms
• 2.• Reporting and operational controls placed on the firm
• 3.• Types of expertise sought by the entrepreneur

     

Fast growing small entrepreneurial firms and their venture capital backers: An applied principal-agent analysis

First the empirical background of the U.K. venture capital industry is developed using a panel of major U.K. venture capital funds over the period 1988–92. Then a framework for applied principal agent analysis is developed, focusing on risk management and information. Under risk management it explores attitude to risk, risk sharing and bearing, and the effects of risk bearing on effort. Under information handling, it explores information systems, information asymmetries between investor (venture capitalist) and investee (entrepreneur), and ways of attenuating them, and information variance and costs. Finally, the contract between investor and investee is seen as a device for trading risk and information. The implications of this trading for risk bearing, effort and efficiency are explored. The whole analysis is supported by a detailed case study which reflects current practice in the U.K. venture capital industry. The evidence provides striking confirmation of the applicability of the principal-agent model to the venture capital financing of hightech ventures.     

Financial intermediaries,ownership structure and the provision of venture capital to SMEs: evidence from Japan

This paper examines how the provision of venture capital to small- and medium-sized businesses (SMEs) is influenced by the ownership structure of the venture capital provider. We introduce a new and unique dataset from the Japanese venture capital market, comprising data on investment and venture capital activities of 127 Japanese venture capital funds. The data allow us to provide a direct comparison of the behaviour of individual owner-manager venture capitalists versus financial intermediation (e.g., bank’s venture capital divisions). The data indicate owner-manager venture capitalists (financial disintermediation) give rise to much smaller portfolios of SMEs and more advice to entrepreneurs. Across the scope of different financial intermediation structures, including banks, life insurance companies, securities firms, corporations and government bodies, there are further differences in the provision of governance and value-added advice provided to SMEs. Also, the data indicate US-affiliated funds in Japan are more likely to have smaller portfolios and tend to provide more advice to SMEs.

Information and the Production of Management in a Theory of the Firm

Abstract

I show that the three main contributions to the theory of the business of the last century – those of Cobb and Douglas (1928 Cobb, Charles W., and Paul H. Douglas. 1928. “A Theory of Production.” American Economic Review 18 (Supplement): 139–165. [Google Scholar]), Coase (1937 Coase, Ronald. 1937. “The Nature of the Firm.” Economica 4 (16): 386–405.[Crossref] , [Google Scholar]), and Lucas (1978 Lucas Jr, Robert E. 1978. “On the Size Distribution of Business Firms.” Bell Journal of Economics 9 (3): 508–523.[Crossref] , [Google Scholar]) – are actually complementary and can be fitted into a general model of the firm size choice as the solution to a problem of optimal allocation of decision making in the economy. Decisions require information, and the availability and cost of information drives the optimization of firm size by the relevant decision makers - managers and entrepreneurs - pursuing the maximization of profits. Trends in firm size, and their reversals, are shown to depend on the aggregate information/output ratio.     

Venture capital in transition: A Monte-Carlo simulation of changes in investment patterns

This article examines the nature of the investment process which has historically generated high returns for venture capital funds, and the impact on fund returns of perceived changes in management practice and the structure of the industry. The article outlines some policy implications for fund managers, investors, and the general management of corporations.The authors have investigated the investment process and the changes in the nature of the process through the use of a Monte-Carlo simulation model. Information gathered from interviews with fund managers and the available published data on venture fund performance (including proprietary surveys) was used to develop and calibrate the model. The model replicates the relatively high average fund returns and distribution of returns for funds through the early 1980s. The model simulates a multistaged investment process which draws on a pool of investment opportunities which have a log normal distribution of returns and a low (zero) average return. The model readily permits the exploration of the impact of management and industry practices on fund returns.The conditions identified by the authors, which led to high rates of return on the part of venture capital funds, include:

• 1.1) multistaged investment or commitment of funds on an incremental basis with evaluation of venture performance before commitment of additional fund;
• 2.2) objective evaluation of venture performance with the clear distinguishing of winners from losers;
• 3.3) parlaying funds or having the confidence to commit further funds to ventures identified as winners;
• 4.4) persistence of returns from one round to the next, which implies that valuable information is gained from previous rounds of investment in the same venture;
• 5.5) long-term holding of investment portfolios for a period sufficient for geometric averaging of compound returns to cause the winners to “take over” or raise portfolio returns.

Taken together, these conditions have permitted venture capital funds to historically realize strong average returns with a few of them realizing extraordinary returns.The article also explores the consequences of what some believe is happening in the industry: a trend toward holding investments for shorter periods, increased competition both for investments and later in the product-market arena, and a growing lack of loyalty between investors and investees. All of these conditions and their indirect consequences were shown by the model to negatively impact the limited partners in the venture capital funds while general partners, given the structure of fees and the distribution of investment returns, generally realized a reasonable to extraordinary return. The article outlines a number of management and investment policy implications for investors and fund managers.