Syndicated investments by venture capital firms: A networking perspective

The networking of 464 venture capital firms is analyzed by examining their joint investments in a sample of 1501 portfolio companies for the period 1966–1982. Some of the factors that influence the amount of networking are the innovativeness, technology, stage, and industry of the portfolio company. Using the resource exchange model, we reason that the relative amount of networking is explained primarily by the degree of uncertainty associated with an investment rather than by the sum of money invested.Among the findings of our study about venture capitalists are the following:The top 61 venture capital firms that managed 57% of the pool of venture capital in 1982 had an extensive network. Three out of four portfolio companies had at least one of the top 61 venture capital firms as an investor. Those top 61 firms network among themselves and with other venture capital firms. Hence they have considerable influence.Sharing of information seems to be more important than spreading of financial risk as a reason for networking. There is no difference in the degree of co-investing of large venture capital firms—those with the deep pockets—and small firms. Furthermore, where there is more uncertainty, there is more co-investing, even though the average amount invested per portfolio company is less. That, we argue, is evidence that the primary reason for co-investing is sharing of knowledge rather than spreading of financial risk. Venture capital firms gain access to the network by having knowledge that other firms need.It is likely that there will be increasing specialization by venture capital firms. Knowledge is an important distinctive competence of venture capital firms. That knowledge includes information such as innovations, technology, and people in specific industry segments. Among the portfolios of the top 61 venture capital firms are ones with a concentration of low innovative companies, others with a concentration of high innovative technology companies, and others with a no particular concentration. As technology changes rapidly and grows more and more complex, we expect that venture capitalists will increasingly specialize according to type of companies in which they invest. Only the largest firms with many venture capitalists will be like “department stores,” which invest in all types of companies. The smaller firms with only a few venture capitalists will tend to be more like “boutiques” which invest in specific types of companies, or in specific geographical regions around the world.We think that the networking of venture capital firms has the following implications for entrepreneurs:Entrepreneurs should seek funds from venture firms that are known to invest in their type of product. It speeds the screening process. If the venture capital firm decides to invest, it can syndicate the investment through its network of similar firms. And after the investment has been made, the venture capital firms can bring substantial expertise to the entrepreneur's company.Entrepreneurs should not hawk their business plans indiscriminately. Through their networks, venture firms become aware of plans that have been rejected by other firms. A plan that gets turned down several times is unlikely to be funded. Thus it is better to approach venture capital firms selectively.The extensive network of the leading venture capital firms probably facilitates the setting of a “market rate” for the funds they invest. The going rate for venture capital is not posted daily. Nevertheless, details of the most recent deals are rapidly disseminated through venture capitalists' networks. Hence, that helps to set an industry-wide rate for the funds being sought by entrepreneurs.Lastly, we give the following advice to strategic planners:Venture capital firms share strategic information that is valuable to others outside their network. Since they often invest in companies with emerging products and services, venture capitalists gather valuable strategic information about future innovations and technological trends. Thus, strategic planners should tap into venture capitalists' networks, and thereby gain access to that information. It is sometimes information of the sort that can revolutionize an industry.     

Duration analysis of venture capital staging: A real options perspective

This study takes a real options perspective towards venture capital staging and views the staging decision as a choice between holding the current option to invest and investing now to obtain the option to invest subsequently. It proposes that this staging decision depends on the factors that influence the value of these two options, such as competition and various sources of uncertainty. The empirical results suggest that market uncertainty encourages venture capital firms to delay investing at each round of financing, whereas competition, project-specific uncertainty and agency concerns prompt venture capital firms to invest sooner. This study has useful implications for theory and practice.     

New venture strategy and profitability: A venture capitalist's assessment

This study uses theoretically justified criteria from the industrial organization (IO) strategy literature and applies it to a new domain, namely, venture capitalists' decision making. Specifically, the study investigates the types of information venture capitalists utilize when evaluating new ventures and how venture capitalists use this information to assess likely new venture profitability. In the interest of advancing our understanding of the decision making policies of venture capitalists, this study addresses many of the limitations of previous research.A review of IO research suggests important relationships between a number of strategy variables and new venture profitability. Some of the relationships proposed by IO strategy research are contingent in nature. The strategy variables and their relationships with profitability are investigated in the domain of venture capitalists' decision making. Individual and aggregate decision making analyses identified those strategy variables (criteria) venture capitalists utilize in assessing likely new venture profitability, namely, timing, key success factor stability, lead time, competitive rivalry, educational capability, industry-related competence, timing × key success factor stability interaction, timing × lead time interaction, and timing × educational capability interaction.On average, the most important criterion for venture capitalists in their assessment of profitability is industry-related competence. The second tier of importance is competitive rivalry, timing, and educational capability. The third tier of importance is lead time, key success factor stability, and timing × lead time interaction. Other interactions are less important. Therefore, while venture capitalists use contingent decision policies, main effects dominate. If venture capitalists use a reported 8 to 12 minutes on average to evaluate a business plan (Sandberg 1986), then this study's findings may help the inexperienced venture capitalist allocate time towards assessing those attributes of primary importance. Although more complex relationships exist between the attributes, the inexperienced venture capitalist can take comfort from this study's findings that main effects dominant amongst senior venture capitalists. Senior venture capitalists may take less comfort from their importance placed on main effects in light of research from IO, which suggests the importance of contingent relationships. The results may also have practical application towards training.How should venture capital firms train their new employees? Should venture capital firms rely solely on experienced venture capitalists lecturing the inexperienced on the criteria they use in assessing a new venture proposal? Like most decision makers, venture capitalists have limited insight into their assessments and venture capital firms need to be aware of the gap between “espoused” policies and policies “in use.” The information being taught needs to be supplemented with venture capitalists' decision-making research that investigates decision policies “in use”, such as this study. Venture capitalist training could also involve experiential learning, in conjunction with cognitive feedback about the decision policies used, to accelerate the learning process. Experiential learning using cognitive feedback maximizes industry related learning while minimizing the cost of inexperienced decisions. For the entrepreneur seeking capital, this increased understanding of venture capitalists' decision making may help them better target their business plans and presentations at those criteria venture capitalists' find most critical to the profitability of a new venture.     

Social capital of venture capitalists and start-up funding

How does the social capital of venture capitalists (VCs) affect the funding of start-ups? By building on the rich social capital literature, we hypothesize a positive effect of VCs?? social capital, derived from past syndication, on the amount of money that start-ups receive. Specifically, we argue that both structural and relational aspects of VCs?? social networks provide VCs with superior access to information about current investment objects and opportunities to leverage them in the future, increasing their willingness to invest in these firms. Our empirical results, derived from a novel dataset containing more than 1,500 first funding rounds in the Internet and IT sector, strongly confirm our hypotheses. We discuss the implications of our findings for theories of venture capital and entrepreneurship, showing that the role and effect of VCs?? social capital on start-up firms may be more complex than previously argued in the 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.     

Emerging strategies in the venture capital industry

This article reports a study of the future direction of the venture capital industry by examining the basic strategies and strategic assumptions of a broad sample of venture capital firms. There are three main sets of results:First, the once homogeneous venture capital industry is rapidly dividing into several different “strategic groups.” Members of these “groups” are increasingly distinguishing themselves from other groups on four basic dimensions followed by member firms: 1. Financial Resources—Equity capital comes from a greater variety of sources (five major sources) resulting in fundamentally different demands on the mission of the receiving venture capital firm. 2. Staff Resources—The way venture capital firms use staff resources, particularly regarding investee management assistance, is becoming increasingly varied across different groups. Some firms provide fewer than 2-days per year, while others provide up to 450 man-days per year per client. 3. Venture Stages—While the overall industry retains a primary interest in stage 1,2, and 3 investment, specific firms vary considerably in the distribution of investment emphasis across these three stages. 4. Use of Financial Resources-Firms in the industry are becoming increasingly differentiated in the size of minimum investments they make ($100 M to $1000 M) and in their role as a direct investor versus a “broker” for institutional funds. Practicing venture capitalists should make use of this first set of findings in two ways. First, they may find it useful to compare their firm's orientation along these four strategic dimensions with those of the firm's that comprised this study. Second, they may seek to use these four strategic dimensions as a basis on which they might examine, clarify, and/or redefine the marketing strategy pursued by their firm.A second set of results identified three goals and priorities of venture capital firms that have neither changed over time nor across increasingly different strategic groups. Annualized, after-tax return on investments of between 25% and 40% remain the most common objective across all firms. A 5-to-6 year investment time horizon and a major emphasis on the quality of the management team in evaluating new deals were universal priorities across diverse venture capital firms.A third finding in this study was that venture capital firms profess greater “certainty” about the future direction of the venture capital industry than the direction of their firm. The most notable example of this is a strong sense that industry-wide rates of return are headed downward yet few senior partners expect their firm to experience this decline.Practicing venture capitalists may be interested to peruse these results to see what trends are predicted within the venture capital industry by this subsample of that industry. Second, they should consider the finding that industry-wide rates of return are headed downward in light of the first two sets of findings to develop their own opinion about the future performance of different strategic groups within the industry.It is important to note that the sample of venture capital firms on which this study was based did not include most of the larger, older funds. Some of these funds would be characterized as “industry leaders, pace-setters, and innovators.” The sample provides a solid representation of the “broad middle” of the venture capital industry and newer entrants into the industry. While larger, older funds are under represented, their impact on future trends and strategies in the industry is captured to some extent in the set of questions about “future direction of the venture capital industry.“Finally, the emerging strategic groups in the venture capital industry that were identified by this study may be useful information for investors as well as users of venture capital. For investors, the opportunity to participate in venture capital activity should become more clearly understood and varied. Basically, this study should help investors differentiate the strategic posture of different venture capital firms and funds on four factors rather than simply industry/geographic considerations.For users of venture capital, the results of this study suggest a possibility for multiple options that are both more accessible and more catered to specific needs. Users of venture capital should find a clearer basis on which to differentiate venture capital firms in terms of venture stage priorities, staff utilization orientations, sources and uses of financial resources. This should make for more informed “shopping” among different venture capital sources and provide a basis on which to “shop” for the most compatible firm.     

A venture capital model of the development process for new ventures

For years, researchers have hypothesized that new ventures develop in a fairly predictable chronological process by evolving through various functional and strategic developmental stages. However, cross-comparable longitudinal data from large numbers of ventures are still not available to validate these “stages of development” hypotheses. The study sought to determine whether venture capital firms, which have extensive experience with the longitudinal development of new ventures, operate in accord with a common theory about how this process operates. These findings also represent a first step toward empirically validating various elements of “stages of development” theories.The study analyzed the perceptions of the CEO or managing partner of 73 U.S. venture capital firms about key features of the development process for new businesses. Venture capital firms were asked whether they differentiated stages in the development process. For each such stage information was elicited on what the stage was called, distinguishing characteristics of ventures in that stage, key developmental goals or benchmarks typically accomplished in that stage, and the major risks involved. Sufficient consensus was found on these aspects of the development process for a “venture capital model” of this process to be constructed. The model consists of five sequential stages: 1) “seed” ; 2) “start-up” ; 3) “second stage” ; 4) “third stage” ; and 5) “exit stage.” Strong consensus was found on distinguishing characteristics of ventures in early stages of development, key developmental goals or benchmarks in various stages, and major developmental risks associated with each stage. Consensus on developmental characteristics diminished somewhat in later stages, presumably because of differential rates of development among investees, as well as differing degrees of success in accomplishing earlier objectives. Nevertheless, sufficient differences in functional characteristics remained to clearly distinguish later stage investees from early stage investees, and to enable differentiations in maturity between “third stage” and “exit stage” investees.The venture capital developmental model exhibits both similarities and differences from “stages of development” paradigms. First, the venture capital model is primarily strategic and market-oriented in focus. It gives lesser emphasis to the elements of organizational structure, management style, and management specialization than some “stages of development” theories, although these elements are identified by venture capitalists as potential areas of risk should problems arise. Second, like “stages of development” paradigms, the venture capital model is universal and not venture specific. Venture capital firms appear to view all potentially feasible business concepts, despite differences in product, organizational complexity, rate of development, or ultimate size, as passing through the same process sequence, albeit at different speeds and with varying degrees of success. Third, the model, while reflecting the financial objectives of venture capital investors, is primarily shaped by the naturally occurring functional development of investees. It does not represent arbitrary requirements imposed on investees to segment the developmental process into steps that would not otherwise occur.The development of venture capital investees is influenced by the strategic and financial objectives of venture capital firms. Thus the model does not necessarily mirror the strategic and dynamic elements of the development process for firms that are not intended by their founders to grow rapidly and then go public or be acquired by a larger corporation, or for ventures that must depend upon internally generated funds or bank loans to finance development.The venture capital model, representing perceptions of 73 venture capital firms derived from longitudinal data for many hundreds of new ventures, appears to empirically confirm the concept of an evolutionary progression through key functional and strategic steps, which is a central element of most “stages-of-development” hypotheses. The study did not go into sufficient depth, however, to provide detail on the influence of factors such as organizational structure and management styles and control systems on development. These factors are central elements in several “stages of development” theories, and are arguably of critical importance in the growth, survival, and financial success of new ventures.     

Determinants of the Incidence and Scale of Seed Capital Investments by Venture Capital Firms

Employing both behavioral decision making and agency theories, our study seeks to identify those factors that influence a venture capital (VC) firm’s decision to undertake seed capital investments and, subsequently, the scale of such activity. Using data on the investments made by 2949 VC funds raised worldwide between 1962 and 2002, we find investor age, timing of investment, and fund location to be of importance. In addition, the size of the fund and the existing number of portfolio firms exert opposite influences on the level of seed capital activity of the VC firm. These results suggest that seed activity is a valuable source of market intelligence for leading VC firms seeking proactively to identify and invest in novel technologies.      

The Deal Structuring Stage of the Venture Capitalist Decision‐Making Process: Exploring Confidence and Control*

This exploratory study examines the deal structuring stage of the venture capitalist decision‐making process. Here, the primary issues of concern are investor confidence and potential control of a venture in relation to the level of financing the investor provides and the structure with which the funding is delivered. Confidence comes in support of the entrepreneur, the venture itself, or a combination of the two, prior to capital transfer, but after the initial “invest or not invest” decision has already occurred. Findings support a multicriteria perspective of the pre‐investment decision‐making process and a distinct difference between entrepreneur confidence and venture confidence in the deal structuring stage.     

Singapore Venture Capitalists (VCs) Investment Evaluation Criteria: A Re-Examination

The Venture capital (VC) industry in Singapore is of recent origin. However, funds under management in Singapore have grown from S$45 million in 1983 to S$7.86 billion in 1996. These developments together with the recent announcement of government's vision of Singapore becoming a hub for venture capital in the region provide an opportunity for an examination of the venture capital industry in Singapore. The VC industry originated in the Western Hemisphere in response to the need for risk capital for high technology industries. In the light of the differences in investment opportunities around Singapore, and the nature of industrial developments in South East Asia in general, the authors anticipated that the investment criteria employed by Venture Capital Firms (VCs) in Singapore would differ. The results however reveal that criteria adopted by Singapore VCs are not very different from those adopted by VCs in other countries including U.S. The results also confirm that the entrepreneur's characteristics or the top management's capabilities are seen as being primary indicators of the venture's potential. Further examination of VCs investment process revealed that the investment criteria adopted by successful VCs were no different from those adopted by less successful VCs. This confirms that investment selection is a multi-stage process wherein venture assessment is only one of the steps in this process. Before VCs evaluate a venture they screen investment proposals based on their investment preferences or investment strategies. VCs in our sample had definite ideas about where to invest and in what types of firms. How do VCs select appropriate investment strategies, however, has not been adequately dealt in the literature and is a fitting subject for further studies.     

Strategic alliances by venture capital backed firms: an empirical examination

A growing body of literature examines the formation of strategic alliances as an important value-added role provided by venture capital firms. This paper contributes to this literature by examining two related questions: whether venture capital firms use strategic alliances as a substitute or compliment to capital infusion, and how venture capital firms use alliances to mitigate different types of risk. Results from 2505 venture-backed startups reveal that venture capital firms treat alliance formation as a substitute for capital infusion and that the breadth of the network of syndication partners investing in the startup increases the number of its strategic alliances. We also find intentionality in alliance formation. Specifically, firms operating in industry environments characterized by technical risk are more likely to form alliances with partners capable of mitigating technical risks, and firms operating in environments characterized by market risk are more likely to form alliances with partners capable of mitigating market risk. Our findings lend additional support to the perspective that alliances represent an important mechanism through which venture capital firms add value to their portfolio companies.     

Informal risk capital investors: Investment patterns on the East Coast of the U.S.A.

In this study we profile a group of informal investors, their investment criteria and the nature of their referral network. The study supports the findings of several earlier studies. It indicates the existence of an extensive informal investment community on the East Coast of the U.S.A., which can provide substantial financial resources to startup and young firms. A full 58% of the sample investments were in startups; a huge proportion compared with formal venture capital sources. The study further supports earlier findings that this group is difficult to locate, for entrepreneurs and researchers alike. This opaque market consists primarily of friends and business colleagues who individually provide modest sums of money ($20,000–$50,000), but are often able to use their network to assemble a group of investors who will sponsor the entire funding requirement. 130 informal investors report that in three years they and their networks raised 38 million dollars to support 286 new venture proposals.There are also encouraging indications that these angels are both enthusiastic and persistent. Many of them claim that they have achieved higher returns via angel activity than any other investment options that they have tried. Of the angels who did better with alternative investment options, more than 80% are still prepared to make further investments. Even those who reported failed investments in the informal risk capital market remain supportive: over 65% indicate a willingness to invest again.The criteria by which the angels screen the proposals differ markedly from those of the venture capital community. In particular, the angels do not appear to be interested in a thorough business plan, a sine qua non for venture capitalists. Unlike the capital firms, angels are not interested in competitive insulation. They do not limit their investments to industries that are appealing, or with which they are familiar, nor do they care very much about the degree to which the entrepreneur has identified competition. However, they are in close agreement with the venture capital community in their concern with the management ability of the venture team and a requirement that there be a clear, demonstrated need for the product or service, preferably in a market with large potential.The study has shed some light on the structure of the referral networks of angels. Though we do not know from this study how the respondents themselves first heard of the ventures that were described in this survey, we do know that their referral network is composed primarily of friends and business colleagues; to whom they refer as much as 60% of the proposals that they receive and in which they themselves eventually invest. Thus they pass on serious opportunities to their network. Their referees are inclined to be very supportive; in our sample almost 75% of them also invested in the venture. The current strategy for informal investors is to approach mainly close contacts. These are inclined to be supportive (85% also invested in the venture) and to follow a trusting investment behavior pattern, relying mainly on the recommendation of the angel. This strategem ensures that the total capital requirements are met via the network. However, given the results of this study; the angels might be well-advised not to stop here, they might also approach at least one professional. Only a small proportion of professionals were approached by our sample of angels (less than 30%). As the study shows, professionals are more effective at selecting successful ventures. Thus a mixed strategy may be called for; use mainly trusting referees to ensure full capitalization and a limited number of professional referees to screen the proposals. This will help ensure that those proposals that do get supported by the more trusting members of the network have been competently screened, thus increasing to the probability of venture success.A discriminant analysis revealed some useful pointers in helping the informal investor select successful ventures. First it is critical to select only ventures in which the entrepeneur can be relied on to evaluate the risks of the ventures and manage these risks well; Angels do not need entrepreneurs that will gamble with their money. Equally important is to avoid placing too much credence on highly articulate sales pitches by the venture team, or too much reliance on ventures in which the main emphasis is on product and proprietary protection. Rather insist on being shown clear evidence that the product or service has channel and/or market acceptance. It is also important for Angels to stick to investments where they know the industry well, and to back venture teams with a solid reputation and a propensity to get involved in the details rather than gloss them over. As in the case of studies of venture capital investments, competitive insulation in the early stages of the venture is also important.     

Agency costs,institutions, learning,and taxation in venture capital contracting

This paper introduces a data set on forms of finance used in 12,363 Canadian and US venture capital (VC) and private equity financings of Canadian entrepreneurial firms from 1991 to 2003. The data comprise different types of venture capital institutions, including corporate, limited partnership, government, and labour-sponsored funds as well as US funds that invest in Canadian entrepreneurial firms. Unlike prior work with US venture capitalists financing US entrepreneurial firms, the data herein indicate that convertible preferred equity has never been the most frequently used form of finance for either US or Canadian venture capitalists financing Canadian entrepreneurial firms, regardless of the definition of the term ‘venture capital’. A syndication example and a simple theoretical framework are provided to show the nonrobustness of prior theoretical work on optimal financial contracts in venture capital finance. Multivariate empirical analyses herein indicate that (1) security design is a response to expected agency problems, (2) capital gains taxation affects contracts, (3) there are trends in the use of different contracts which can be interpreted as learning, and (4) market conditions affect contracts.     

Differences in the Usage of Bootstrap Financing among Technology-Based versus Nontechnology-Based Firms

This study compares owners' assessment of the importance of 28 bootstrap financing methods between a sample of 44 technology-based and 44 nontechnology-based firms. The results indicated that owners' of technology-based firms believed that 6 of the 28 bootstrap financing methods were more important as compared to owners'methods of nontechnology-based firms. The bootstrap financing methods also were grouped using Winborg and Landstrom (2001) factors. Owners of technology-based firms believed that bootstrap financing methods that improved cash inflows were more important and that bootstrap financing methods that slowed disbursements were less important compared to owners of nontechnology-based firms. The results can be used by owners of small firms, consultants and by support agencies that provide assistance with financial planning and capital acquisition. Understanding the use and availability of all sources of capital can help owners of small firms to develop comprehensive financial strategies. This information also could be incorporated into training programs for owners and managers of small firms.     

Does Venture Capital Syndication Spur Employment Growth and Shareholder Value? Evidence from German IPO Data

This study empirically examines the syndication of equity by multiple venture capitalists in Germany. Following the literature, there are mainly two competing views as to why venture capitalists syndicate investments. First, syndication can be viewed as a means of risk-sharing. Second, venture capitalists may provide important productive resources to firms: capital and information. I test hypotheses based on these two aspects. The results show that the syndication of equity and the number of venture capitalists involved cannot be fully explained by firm characteristics like size, age, or industry affiliation. Although syndicated investments do not differ significantly in stock-market performance, they do show significantly higher growth rates.     

Internationalization of Western Venture Capitalists into Emerging Markets: Risk Assessment and Information in India

This paper provides the first analysis of the internationalization of venture capital firms through an examination of risk assessment and information usage by firms in India. Personal interviews were conducted with executives in 31 (84%) of the active venture capital firms. The paper extends previous research by comparing perceptions of the behavior of domestic venture capital firms in India, foreign (primarily U.S.) venture capital firms in India and U.S. venture capital firms in their domestic markets. Foreign firms in India place significantly greater emphasis on product market factors and accountants' reports than domestic firms in India. They place significantly less emphasis on financial contributions of management in assessing risk and own due diligence and information from entrepreneurs than do U.S. firms in their domestic market. They make more use of information from trade publications and relating to production capacity and technology and information from accountants' reports than do domestic venture capital firms in India. The evidence is consistent with venture capital firms adapting to local market conditions rather than implementing "recipes" from their domestic markets.     

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.     

Organizational Virtue and Stakeholder Interdependence: An Empirical Examination of Financial Intermediaries and IPO Firms

Organizational virtue orientation (OVO), an organizational-level construct, refers to the integrated set of beliefs and values that support ethical character traits and virtuous behaviors. To advance the study of organizational virtue, we examine OVO in firms making their initial public offerings (IPOs), with respect to key external stakeholders that serve as financial intermediaries (i.e., venture capital firms and underwriting banks). Drawing on stakeholder and resource dependence theories, we argue that mutual interdependencies occur between financial intermediaries and IPO firms such that venture capital firms’ ownership levels and underwriter reputation are positively associated with the selection of more virtuous IPO firms. We also argue for the moderating relationship of IPO firm age on these main relationships; since IPO firms have more history and information availability, less importance will be placed on OVO in the selection process. In support of our hypotheses, the results of this study suggest the organizational virtue of IPO firms influences the selection decisions of financial intermediaries by reflecting positively on these key stakeholders to improve legitimacy and reputation.     

实物期权及其在风险投资中的应用

从广义的期权定义中引出实物期权的概念,对金融期权和实物期权进行比较分析;并借鉴金融期权的定价方法,得出实物期权的定价公式。通过计算风险投资项目中实物期权的价值,比较含有实物期权的风险投资项目与一般投资项目的价值,可以看出在风险投资中引入实物期权的思想,对风险投资家做出正确的投资决策,以及对风险资本的保值增值有重大的指导意义。