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Article
Publication date: 1 January 1994

J.B. Barney, Lowell Busenitz, Jim Fiet and Doug Moesel

Two types of opportunism, managerial and competitive, are described. Contractual covenants that control these types of opportunism are used when they are likely to occur…

Abstract

Two types of opportunism, managerial and competitive, are described. Contractual covenants that control these types of opportunism are used when they are likely to occur, i.e., when there are obstacles to monitoring management behavior and when returns to starting new firms are large. These ideas are subjected to empirical test. The relationship between managers in new firms and venture capitalists is receiving increased attention in the literature (Norton and Tenenbaum 1990; Sahlman, 1988). The determinants and implications of several attributes of these relationships have been examined, including the percentage of a new firm's equity held by venture capitalists, the number of seats on the board controlled by venture capitalists, and the post‐funding activities of venture capitalists (e.g., helping the new firm raise additional capital, contacting customers, replacing management) (Barney, Busenitz, Fiet, and Moesel, 1989). While our understanding of the relationship between managers in new firms and venture capitalists is growing, one particularly important component of that relationship has yet to receive significant attention in the literature: the details of the formal contractual arrangement between managers in a new firm and venture capitalists. Often called the “terms and conditions” of the relationship between managers and venture capitalists, these contractual details specify the rights and obligations of both managers and venture capitalists throughout their entire relationship in a series of covenants (Fiet, 1991). Among other items, contractual covenants can specify limits on capital expenditures, limits on managerial salaries, limitations on raising additional outside capital, technology non‐disclosure agreements, and conditions for forcing a change in managing and liquidating the deal. The purpose of this paper is to understand the determinants of the formal contractual arrangements between managers in new firms and venture capitalists.

Details

Managerial Finance, vol. 20 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 21 November 2016

Monika Dhochak and Anil Kumar Sharma

The purpose of this paper is to identify and rank critical factors influencing investment decisions of venture capitalists.

Abstract

Purpose

The purpose of this paper is to identify and rank critical factors influencing investment decisions of venture capitalists.

Design/methodology/approach

To identify and prioritize factors affecting investment decisions of venture capitalists, a two-phase methodology was adopted: in the first phase, critical factors influencing venture capitalists’ investment decisions were identified using exploratory factor analysis; the second phase entailed the use of a multi-criteria decision-making technique – analytical hierarchal process (AHP) which involved assigning weights to, and prioritizing the identified criteria and sub-criteria.

Findings

Seven factors were found to significantly influence investment decisions of venture capitalists: entrepreneur’s characteristics, product or services, market characteristics, management skills, financial consideration, economic environment and institutional and regulatory environment. Findings revealed that entrepreneur’s characteristics, financial consideration and product or services were prime influencers of venture capitalists’ investment decisions.

Research limitations/implications

As for limitations, first, the study considers limited number of factors influencing investment decisions of venture capitalists; there may be other influencers not considered in this study. Second, the AHP methodology assumes that the various decision-making criteria and sub-criteria are independent of each other; in real life, there may be inter-dependency among criteria. Third, the hierarchal model has been tested in the Indian venture capital industry only, and generalizability of results with respect to other industries is questionable.

Practical implications

The present study identifies and ranks seven factors found to significantly influence investment decisions of venture capitalists. Venture capitalists could use this list of factors as a guideline before making investment decisions, and if considering all factors is not possible, take into account the factors given top rank so that they arrive at informed and intelligent decisions.

Originality/value

This study is the first to identify economic factors (economic environment and institutional & regulatory environment) as influencers of venture capitalists’ investment decisions. Further, no study in the past has attempted to rank or prioritize factors influencing venture capitalists’ investment decisions; this is the first attempt of the kind.

Details

Journal of Small Business and Enterprise Development, vol. 23 no. 4
Type: Research Article
ISSN: 1462-6004

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Article
Publication date: 8 May 2007

Kuntara Pukthuanthong and Thomas Walker

This study seeks to examine the peculiarities of the venture capital market in China and seeks to compare it with Western markets.

Abstract

Purpose

This study seeks to examine the peculiarities of the venture capital market in China and seeks to compare it with Western markets.

Design/methodology/approach

The paper provides insights based on both the practitioner and academic literature in the field.

Findings

It is noted that different cultural norms, corporate governance structures, a lack of appropriate exit strategies, and governmental intervention are important factors that set the markets apart and should be taken into consideration when making venture capital investments in China.

Practical implications

The paper should be of interest to practitioners considering investing in China and to academics doing research in this area.

Originality/value

The paper is to the best of the authors' knowledge the first to provide a detailed and comprehensive review of the Chinese venture capital market.

Details

Management Decision, vol. 45 no. 4
Type: Research Article
ISSN: 0025-1747

Keywords

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Abstract

Details

Reflections and Extensions on Key Papers of the First Twenty-Five Years of Advances
Type: Book
ISBN: 978-1-78756-435-0

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Book part
Publication date: 10 November 2004

Georg Rindermann

This chapter investigates the impact of venture capitalists on the operating and market performance of firms going public on the French Nouveau Marché, the German Neuer…

Abstract

This chapter investigates the impact of venture capitalists on the operating and market performance of firms going public on the French Nouveau Marché, the German Neuer Markt and the British techMARK. Considering different variables that reflect the quality of venture-backing, the findings suggest that venture-backed firms do not generally outperform those without venture-backing. However, a subgroup of internationally operating venture capitalists has positive effects on the performance of portfolio firms. The outcome is interpreted as evidence of heterogeneity among venture capitalists in the European market.

Details

The Rise and Fall of Europe's New Stock Markets
Type: Book
ISBN: 978-0-76231-137-8

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Article
Publication date: 2 October 2007

Darek Klonowski

The purpose of this paper is to focus on the investigation of the venture capital investment process in the emerging markets of Central and Eastern Europe (CEE), including…

Abstract

Purpose

The purpose of this paper is to focus on the investigation of the venture capital investment process in the emerging markets of Central and Eastern Europe (CEE), including Hungary, Poland, the Czech Republic, Slovakia, Romania, and Russia. The study aims to describe the mechanics by which venture capital firms operating in the CEE region process deals.

Design/methodology/approach

The paper is based on a two‐phase interview interaction process with venture capitalists operating in the CEE region. In the first semi‐structured (exploratory) phase of the study, 14 venture capitalists agreed to participate in one‐hour interview and aimed at discussing their venture capital process. In the second phase of the study (confirmatory), 24 venture capital firms commented on the actual fit of the proposed nine‐stage model into their past investments.

Findings

The study has two conclusions. Firstly, the study confirms the existence of a nine‐stage venture capital investment model, comprised of deal origination, initial screening, feedback from the investment committee and due diligence Phase I, feedback from the investment committee (due diligence Phase I), pre‐approval completions, formal approvals and due diligence Phase II, deal completion, monitoring, and exit. Secondly, the proposed model defines the venture capital process in terms of three channels of activity: document channel, information channel, and decision channel.

Originality/value

The study is important for at least four reasons. Firstly, the study focuses on the investigation of the entire venture capital process. Previous research in the area focuses on some specific facets of the venture capital process. Secondly, the paper investigates the connection between decision‐making, information gathering and written communication within a venture capital fund. Thirdly, the study focuses on the most recent period of development of the CEE industry. Many venture capital firms only recently crystallized their venture capital process. Lastly, the study proposes areas of further research for academics and makes suggestions for practitioners.

Details

International Journal of Emerging Markets, vol. 2 no. 4
Type: Research Article
ISSN: 1746-8809

Keywords

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Article
Publication date: 1 January 1994

Harry J. Sapienza, Allen C. Amason and Sophie Manigart

This research was funded in part by the Center for International Business Research, University of South Carolina.

Abstract

This research was funded in part by the Center for International Business Research, University of South Carolina.

Details

Managerial Finance, vol. 20 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 May 1992

Ken Robbie and Gordon Murray

As the venture capital industry matures and competition increases,understanding the processes by which entrepreneurs select venturecapitalists will become increasingly…

Abstract

As the venture capital industry matures and competition increases, understanding the processes by which entrepreneurs select venture capitalists will become increasingly important. Empirical work suggests that awareness of venture capital firms is still low and that the specialist financial and legal advisers have an important role to play in guiding the flow of proposals to venture capitalists.

Details

International Journal of Bank Marketing, vol. 10 no. 5
Type: Research Article
ISSN: 0265-2323

Keywords

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Article
Publication date: 9 July 2018

Marco Bade

Crowdfunding creates multifaceted benefits for different agents who all desire to extract some of these benefits. The purpose of this paper is to analyze the allocation of…

Abstract

Purpose

Crowdfunding creates multifaceted benefits for different agents who all desire to extract some of these benefits. The purpose of this paper is to analyze the allocation of crowdfunding benefits among crowdfunders, entrepreneurs, and venture capitalists.

Design/methodology/approach

The present paper develops a multi-stage bargaining model with a double-sided moral hazard.

Findings

It is demonstrated that higher entrepreneurial bargaining power vis-à-vis the crowd may not always be beneficial for the venture. Most importantly, this is due to the reduced success probability of crowdfunding resulting from higher bargaining power of the entrepreneur. Bargaining power and the value of outside options determine the equilibrium allocation of crowdfunding benefits, expected venture value, and thus expected wealth of all agents.

Practical implications

Entrepreneurs face a tradeoff between venture quality gains and worse outcomes from crowdfunding campaigns. Crowdfunding success and thus venture quality gains are the ultimate goal of policy makers if they aim to enhance the overall social welfare.

Originality/value

This paper is the first to investigate how multifaceted crowdfunding benefits are allocated between the crowd, entrepreneurs, and venture capitalists. The paper furthers the development of an appropriate regulatory framework for crowdfunding by depicting new and original effects related to crowdfunding.

Details

Journal of Entrepreneurship and Public Policy, vol. 7 no. 2
Type: Research Article
ISSN: 2045-2101

Keywords

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Article
Publication date: 1 March 1991

Vance H. Fried and Robert D. Hisrich

The venture capital industry is of vital importance to many entrepreneurial firms, as well as to those interested in economic development. Research on the venture capital…

Abstract

The venture capital industry is of vital importance to many entrepreneurial firms, as well as to those interested in economic development. Research on the venture capital industry generally treats it as a single, homogeneous industry. However, the industry is actually made up of a variety of sub‐groups. An understanding of these sub‐groups is important to venture capitalists, entrepreneurs, public policy makers and academics.

Details

Management Research News, vol. 14 no. 3
Type: Research Article
ISSN: 0140-9174

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