IDEAS home Printed from https://ideas.repec.org/a/sae/entthe/v30y2006i2p185-206.html
   My bibliography  Save this article

Allocation of Attention to Portfolio Companies and the Performance of Venture Capital Firms

Author

Listed:
  • Mikko Jääskeläinen
  • Markku Maula
  • Tuukka Seppä

Abstract

This article proposes that the attention allocated by venture capitalists to portfolio companies impacts their performance. The article develops arguments for optimal portfolio size and for the moderating roles of syndication frequency and role. The hypotheses receive support from analyses employing longitudinal data of the leading U.S. venture capital firms. Our results indicate the value of venture capitalist involvement and give guidance for its optimal allocation and syndication.

Suggested Citation

  • Mikko Jääskeläinen & Markku Maula & Tuukka Seppä, 2006. "Allocation of Attention to Portfolio Companies and the Performance of Venture Capital Firms," Entrepreneurship Theory and Practice, , vol. 30(2), pages 185-206, March.
    • Handle: RePEc:sae:entthe:v:30:y:2006:i:2:p:185-206
    DOI: 10.1111/j.1540-6520.2006.00117.x
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1111/j.1540-6520.2006.00117.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1540-6520.2006.00117.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    2. Bergemann, Dirk & Hege, Ulrich, 1998. "Venture capital financing, moral hazard, and learning," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 703-735, August.
    3. Bruce Kogut & Udo Zander, 1992. "Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology," Organization Science, INFORMS, vol. 3(3), pages 383-397, August.
    4. Macmillan, Ian C. & Kulow, David M. & Khoylian, Roubina, 1989. "Venture capitalists' involvement in their investments: Extent and performance," Journal of Business Venturing, Elsevier, vol. 4(1), pages 27-47, January.
    5. Lockett, Andy & Wright, Mike, 2001. "The syndication of venture capital investments," Omega, Elsevier, vol. 29(5), pages 375-390, October.
    6. Barney, Jay B. & Busenitz, Lowell W. & Fiet, James O. & Moesel, Douglas D., 1996. "New venture teams' assessment of learning assistance from venture capital firms," Journal of Business Venturing, Elsevier, vol. 11(4), pages 257-272, July.
    7. Admati, Anat R & Pfleiderer, Paul, 1994. "Robust Financial Contracting and the Role of Venture Capitalists," Journal of Finance, American Finance Association, vol. 49(2), pages 371-402, June.
    8. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
    9. Chan, Yuk-Shee, 1983. "On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information," Journal of Finance, American Finance Association, vol. 38(5), pages 1543-1568, December.
    10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    11. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    12. James A. Brander & Raphael Amit & Werner Antweiler, 2002. "Venture‐Capital Syndication: Improved Venture Selection vs. The Value‐Added Hypothesis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(3), pages 423-452, September.
    13. Busenitz, Lowell W. & Fiet, James O. & Moesel, Douglas D., 2004. "Reconsidering the venture capitalists' "value added" proposition: An interorganizational learning perspective," Journal of Business Venturing, Elsevier, vol. 19(6), pages 787-807, November.
    14. Elango, B. & Fried, Vance H. & Hisrich, Robert D. & Polonchek, Amy, 1995. "How venture capital firms differ," Journal of Business Venturing, Elsevier, vol. 10(2), pages 157-179, March.
    15. Gompers, Paul A, 1995. "Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-1489, December.
    16. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2003. "A cross-country comparison of full and partial venture capital exits," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 511-548, March.
    17. A. Colin Cameron & Pravin K. Trivedi, 1986. "Econometric models based on count data. Comparisons and applications of some estimators and tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 29-53, January.
    18. Bygrave, William D., 1988. "The structure of the investment networks of venture capital firms," Journal of Business Venturing, Elsevier, vol. 3(2), pages 137-157.
    19. Cochrane, John H., 2005. "The risk and return of venture capital," Journal of Financial Economics, Elsevier, vol. 75(1), pages 3-52, January.
    20. Rosenstein, Joseph & Bruno, Albert V. & Bygrave, William D. & Taylor, Natalie T., 1993. "The CEO, venture capitalists, and the board," Journal of Business Venturing, Elsevier, vol. 8(2), pages 99-113, March.
    21. Gifford, Sharon, 1997. "Limited attention and the role of the venture capitalist," Journal of Business Venturing, Elsevier, vol. 12(6), pages 459-482, November.
    22. Norton, Edgar & Tenenbaum, Bernard H., 1993. "Specialization versus diversification as a venture capital investment strategy," Journal of Business Venturing, Elsevier, vol. 8(5), pages 431-442, September.
    23. Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, vol. 23(3), Fall.
    24. Murray, Gordon C. & Marriott, Richard, 1998. "Why has the investment performance of technology-specialist, European venture capital funds been so poor?," Research Policy, Elsevier, vol. 27(9), pages 947-976, December.
    25. Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January.
    26. Mike Wright & Andy Lockett, 2003. "The Structure and Management of Alliances: Syndication in the Venture Capital Industry," Journal of Management Studies, Wiley Blackwell, vol. 40(8), pages 2073-2102, December.
    27. Ehrlich, Sanford B. & De Noble, Alex F. & Moore, Tracy & Weaver, Richard R., 1994. "After the cash arrives: A comparative study of venture capital and private investor involvement in entrepreneurial firms," Journal of Business Venturing, Elsevier, vol. 9(1), pages 67-82, January.
    28. Douglas J. Cumming, 2006. "The Determinants of Venture Capital Portfolio Size: Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1083-1126, May.
    29. Lloyd Steier & Royston Greenwood, 1995. "Venture Capitalist Relationships In The Deal Structuring And Post‐Investment Stages Of New Firm Creation," Journal of Management Studies, Wiley Blackwell, vol. 32(3), pages 337-357, May.
    30. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September.
    31. Lerner, Josh, 1995. "Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-318, March.
    32. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    33. Bygrave, William D., 1987. "Syndicated investments by venture capital firms: A networking perspective," Journal of Business Venturing, Elsevier, vol. 2(2), pages 139-154.
    34. C. K. Prahalad & Richard A. Bettis, 1986. "The dominant logic: A new linkage between diversity and performance," Strategic Management Journal, Wiley Blackwell, vol. 7(6), pages 485-501, November.
    35. Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November.
    36. Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dimo Dimov & Dirk De Clercq, 2006. "Venture Capital Investment Strategy and Portfolio Failure Rate: A Longitudinal Study," Entrepreneurship Theory and Practice, , vol. 30(2), pages 207-223, March.
    2. Johannes Wallmeroth & Peter Wirtz & Alexander Peter Groh, 2017. "Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review," Working Papers hal-01527999, HAL.
    3. Douglas Cumming & Sofia Johan, 2006. "Provincial preferences in private equity," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 20(4), pages 369-398, December.
    4. Jens Burchardt & Ulrich Hommel & Dzidziso Samuel Kamuriwo & Carolina Billitteri, 2016. "Venture Capital Contracting in Theory and Practice: Implications for Entrepreneurship Research," Entrepreneurship Theory and Practice, , vol. 40(1), pages 25-48, January.
    5. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, screening and syndication in venture capital investments," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 368-398, July.
    6. Rosenbusch, Nina & Brinckmann, Jan & Müller, Verena, 2013. "Does acquiring venture capital pay off for the funded firms? A meta-analysis on the relationship between venture capital investment and funded firm financial performance," Journal of Business Venturing, Elsevier, vol. 28(3), pages 335-353.
    7. Amina Hamdouni, 2011. "Impact de la syndication sur la performance des entreprises financées par capital-investissement et sur la richesse des parties prenantes," Post-Print hal-00650456, HAL.
    8. Douglas Cumming & Sofia Johan, 2007. "Advice and monitoring in venture finance," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 21(1), pages 3-43, March.
    9. Sophie Manigart & Andy Lockett & Miguel Meuleman & Mike Wright & Hans Landström & Hans Bruining & Philippe Desbrières & Ulrich Hommel, 2006. "Venture Capitalists’ Decision to Syndicate," Entrepreneurship Theory and Practice, , vol. 30(2), pages 131-153, March.
    10. Violetta Bacon-Gerasymenko & Jonathan D. Arthurs & Sam Y. Cho, 2020. "How and When Investment Horizons Determine Venture Capital Firms’ Attention Breadth to Portfolio Companies," Entrepreneurship Theory and Practice, , vol. 44(3), pages 475-503, May.
    11. Balboa, Marina & Marti, Jose, 2007. "Factors that determine the reputation of private equity managers in developing markets," Journal of Business Venturing, Elsevier, vol. 22(4), pages 453-480, July.
    12. Douglas Cumming & Satish Kumar & Weng Marc Lim & Nitesh Pandey, 2023. "Mapping the venture capital and private equity research: a bibliometric review and future research agenda," Small Business Economics, Springer, vol. 61(1), pages 173-221, June.
    13. Andrew Metrick & Ayako Yasuda, 2011. "Venture Capital and Other Private Equity: a Survey," European Financial Management, European Financial Management Association, vol. 17(4), pages 619-654, September.
    14. Lohwasser, Todor S., 2020. "Meta-analyzing the relative performance of venture capital-backed firms," Discussion Papers of the Institute for Organisational Economics 4/2020, University of Münster, Institute for Organisational Economics.
    15. Dirk De Clercq & Harry J. Sapienza & Akbar Zaheer, 2008. "Firm and Group Influences on Venture Capital Firms’ Involvement in New Ventures," Journal of Management Studies, Wiley Blackwell, vol. 45(7), pages 1169-1194, November.
    16. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 609-639, Elsevier.
    17. Frits H. Wijbenga & Theo J.B.M. Postma & Rebecca Stratling, 2007. "The Influence of the Venture Capitalist's Governance Activities on the Entrepreneurial Firm's Control Systems and Performance," Entrepreneurship Theory and Practice, , vol. 31(2), pages 257-277, March.
    18. S. Manigart & A. Lockett & M. Meuleman & M. Wright & H. Landström & H. Bruining & P. Desbrières & U. Hommel, 2004. "Why Do Venture Capital Companies Syndicate?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/226, Ghent University, Faculty of Economics and Business Administration.
    19. Schilder, Dirk, 2007. "Venture capital syndicate networks: the determinants of interconnectedness," Freiberg Working Papers 2007/03, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
    20. Jackson, William E. & Bates, Timothy & Bradford, William D., 2012. "Does venture capitalist activism improve investment performance?," Journal of Business Venturing, Elsevier, vol. 27(3), pages 342-354.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:entthe:v:30:y:2006:i:2:p:185-206. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.