Etla » venture capital

Importance of the Non-financial Value Added of Government and Independent Venture Capitalists

admin — Fri, 02 Sep 2011 11:00:00 +0000

This paper compares the post-investment value-added activities performed by governmental venture capital (GVC) and independent venture capital (IVC) for their portfolio companies, and controls for the selection effect that the different investment profiles of these investors might have on the forms of value added. The study uses a unique data set based on a survey addressed to new VC-backed, technology-based firms from seven European countries. The study focused on the importance of the contribution by the first lead investor in a variety of activity areas, as assessed by the investee companies. The study also pays attention to potential adverse effects of the post-investment engagement of the investors on the firm.

Using a composite indicator of the extent of the value added, we find no statistically significant difference between the two types of investors. However, the type of value added differs across investor type and, in particular, IVCs contribution proves to be significantly higher than that of GVCs in a number of areas, including the development of the business idea, professionalisation and exit orientation.

JEL: G24, G32, O16
Publication year: 2011
Pages: 32
Price: 10€
Language: English
Discussion Papers no. 1257

Different Types of Venture Capital Investors and Value-added to High-Tech Portfolio Firms

admin — Tue, 21 Oct 2008 11:00:00 +0000

This paper examines the knowhow in strategic business areas that venture capital companies and organizations impart to their portfolio firms in early-stage high-tech enterprises and the mechanisms they use to impart this knowledge.
The paper considers three types of investors, independent, private-sector venture capital firms, public-sector venture capital organizations, and business angels, who can be regarded as informal venture capital investors. The study draws on a limited data set to illustrate their activities.

The paper draws attention to different theoretical approaches that might explain the observed behaviour. It examines whether the differences are related to the intermediary position of each investor type and subsequent incentives they have in doing their jobs – especially expounded by contract-based approaches – or the competencies in doing their jobs based on competence-based view of the firms.

It turns out that neither approach alone can account for the observed behaviour. It is claimed that the two different types of rationales have interactive relations thus reinforcing the observed patterns of behaviour. Thus an active involvement both ex ante and ex post by the private sector venture capital firms might be the result of both factors at work. Another important finding relates to the role of public sector venture capital organizations as the most passive among the investor types. This leads the paper to suggest a reconsideration of the role of the public sector organisations in venture capital activity.

JEL: G24, O16
Publication year: 2008
Pages: 24
Price: 10€
Language: English
Discussion Papers no. 1149

Understanding Strategies of the Venture Capital Investors in Helping Their Portfolio Firms to Become International

admin — Fri, 17 Aug 2007 11:00:00 +0000

This paper reports the findings of two empirical studies on the value-added of venture capital with special attention on promoting internationalisation of start-up firms. The first study is based on a survey of Finnish (and a few cross-border) venture capital organisations on the value-adding mechanisms they use with regard to their portfolio firms. The second study is based on interviews with Finnish biotechnology start-ups. Attention is paid specifically to the strategies of three different types of investors in early-stage high growth companies : 1) business angels, which can be regarded as informal venture capitalists, 2) private-sector venture capital firms and 3) public-sector venture capital organisations. Control of agency costs and risks provides a conceptual framework for analysing the strategies of the different investor types. The findings partially corroborate and partially refute the hypotheses made on the basis of theory and the two studies provide somewhat conflicting findings on the role and strategies of the different investor types. According to the venture capital survey, private sector venture capital firms were most actively engaged in ex post monitoring and coaching of their portfolio firms in internationalisation, while according to the biotechnology study, business angels turned out to be most actively engaged. The paper discusses potential reasons for these divergent findings.

JEL: G24, O16
Publication year: 2007
Pages: 24
Price: 10€
Language: English
Discussion Papers no. 1099

Non-financial Value-added of Venture Capital: A Comparative Study of Different Venture Capital Investors

admin — Fri, 19 Jan 2007 11:00:00 +0000

This study focuses on the non-financial value-added Venture Capital (VC) investors bring to their portfolio companies, especially when these represent early-stage, high-technology and high-growth companies. The study draws attention to the extent and nature of non-financial value-added and analyses whether and in what ways different types of VC investors differ in this respect.
The data were collected via a web-based survey tool in the autumn of 2006. The study takes into consideration the viewpoint of VC investors as it focuses on Finnish VC companies (private sector VCs), public sector VC organisations and informal investors (business angels). An effort was made to collect data from foreign investors active in Finland though they did not respond actively.
Major findings of the study included the observation that private sector VCs were the most and public sector VCs the least active in monitoring their portfolio companies. Informal VCs were less active than expected. The different investor types had distinct profiles in providing management support and advice. Overall, private sector VCs evaluated the non-financial support they provided as the most and public sector VCs the least important for the success of their portfolio companies while informal VCs were between these extremes. These findings differed from those obtained in our study on the value-adding function of VCs in biotechnology, according to which informal VCs were found to have the highest overall value-added and kept closest contacts with their investee firms.

JEL: O16, G24, G32
Publication year: 2007
Pages: 36
Price: 10€
Language: English
Discussion Papers no. 1067

Venture Capital Industry in Finland – Country Report for the Venture Fun Project

admin — Wed, 01 Mar 2006 11:00:00 +0000

This report is a descriptive account of the major features of the Venture Capital (VC) Industry in Finland. It has been prepared as a background report for a project entitled Venture Fun, carried out in an EU Network of Excellence PRIME and funded from the Sixth Framework Programme. The report provides a brief overview of the evolution and present structures of the VC industry in Finland, and draws attention to factors that affect the development of VC industry, among others, to the nature of policies pursued in this field. One of its observations is the fact that the primary rationale for policies has been closing the early phase funding gap for start-ups, the promotion of SMEs, regional development or other socio-economic objectives, rather than the promotion of VC industry. As a result, policy measures have tended to be permanent, not temporary, since the objectives are difficult to achieve in a fixed time period. Furthermore, the policies pursued have made a separation of the monetary and non-monetary value-adding functions of VC, and only recently have acknowledged the value of the latter for the growth of high-tech start-ups.

JEL: O16, O38
Publication year: 2006
Pages: 48
Price: 10€
Language: English
Discussion Papers no. 1003

Venture Capital Industries and Policies: Some Cross-Country Comparisons

admin — Wed, 01 Mar 2006 11:00:00 +0000

The paper summarizes the findings obtained during the first year of the Venture Fun project, carried out in an EU Network of Excellence PRIME and funded from the Sixth Framework Programme. The paper defines the central concepts of the project, identifies questions for further elaboration and study, and finally provides a rough idea of the different profiles that the studied countries (Finland, Israel, France, Italy, and the UK) evidence in the organization of their VC industries. One of the conclusions of the paper is that Israel, and to a lesser extent, Finland, has succeeded in developing a specialized, independent VC industry oriented to the early phase finance and support of ICT start-ups. By contrast, though the UK has a strong Private Equity industry, it is, however, not focusing on early-stage or high tech areas. Italy and France showed a significant presence of Venture Capital and Private Equity industries (public/private organisations), but in Italy an early phase VC industry has almost disappeared after 2001. The paper further summarises factors that have influenced the development of VC industries in the studied countries.

JEL: O16, O38
Publication year: 2006
Pages: 23
Price: 10€
Language: English
Discussion Papers no. 1006