The Perceived Value-added of Venture Capital Investors. Evidence from Finnish Biotechnology Industry
AbstractThis study focuses on the non-financial value-added of venture capital investors (VCs) as perceived by the CEOs of Finnish biotechnology companies. It pays attention to differences in the value-added between informal venture capitalists, private sector venture capitalists and public sector venture capital organizations. In addition, this study pays attention to value-adding mechanisms which venture capitalists use in developing their portfolio companies and factors which influence the perceived value-added. In general, venture capitalists in Finnish biotechnology companies were found to be rather active hands-on investors, especially in terms of frequent contacts. In addition, their non-financial support was in most cases perceived as important for the success of the Finnish biotechnology companies. The VCs provide value-added indirectly through screening and signaling, and directly through monitoring and providing non-financial support in variety of business areas, for example, in strategic planning and in obtaining additional financing. The value-adding of the VCs was found not to be merely vested in the VCs role in the investeeŽs board of directors, as the VCs were found rather often to be in contact with their investee companies outside the board meetings. The value-adding profile of each VC type was found to differ somewhat from one another. Of all VC types, informal VCs were perceived to provide value-added the most and were the most active in other respects. The public sector VCs stood out as most active providers of indirect value-added through signaling, while private sector VCs were characterized by being actively involved in implementing proper corporate governance. As predicted, the perceived value-added was found to be greater when the relationship with between the CEO and the lead VC was close and there were no tensions inside the investee company resulting from the involvement of VC. The results showed also that short experience of the CEO in investee companyŽs industry increased the perceived value-added.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1030.
Date of creation: 2006
Date of revision:
Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
This paper has been announced in the following NEP Reports:
- NEP-AGR-2006-07-28 (Agricultural Economics)
- NEP-ALL-2006-07-28 (All new papers)
- NEP-ENT-2006-07-28 (Entrepreneurship)
- NEP-FIN-2006-07-28 (Finance)
- NEP-FMK-2006-07-28 (Financial Markets)
- NEP-TID-2006-07-28 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Franzke, Stefanie A., 2003. "Underpricing of venture-backed and non venture-backed IPOs: Germany's Neuer Markt," CFS Working Paper Series 2001/01, Center for Financial Studies (CFS).
- Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January.
- Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July.
- Hyytinen, Ari & Väänänen, Lotta, 2002. "Government Funding of Small and Medium-sized Enterprises in Finland," Discussion Papers 832, The Research Institute of the Finnish Economy.
- Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
- 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.
- Günseli Baygan & Michael Freudenberg, 2000. "The Internationalisation of Venture Capital Activity in OECD Countries: Implications for Measurement and Policy," OECD Science, Technology and Industry Working Papers 2000/7, OECD Publishing.
- Lin, Timothy H. & Smith, Richard L., 1998. "Insider reputation and selling decisions: the unwinding of venture capital investments during equity IPOs," Journal of Corporate Finance, Elsevier, vol. 4(3), pages 241-263, September.
- 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.
- Rebecca Harding, 2002. "Plugging the knowledge gap: An international comparison of the role for policy in the venture capital market," Venture Capital, Taylor & Francis Journals, vol. 4(1), pages 59-76, January.
- Denis, David J., 2004. "Entrepreneurial finance: an overview of the issues and evidence," Journal of Corporate Finance, Elsevier, vol. 10(2), pages 301-326, March.
- 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.
- Mason, Colin M & Harrison, Richard T, 2000. " The Size of the Informal Venture Capital Market in the United Kingdom," Small Business Economics, Springer, vol. 15(2), pages 137-48, September.
- Luukkonen, Terttu, 2006. "Venture Capital Industry in Finland - Country Report for the Venture Fun Project," Discussion Papers 1003, The Research Institute of the Finnish Economy.
- 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.
- Paul Gompers & Josh Lerner, 2006. "The Venture Capital Cycle, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572389, December.
- Bharat A. Jain & Omesh Kini, 2000. "Does the Presence of Venture Capitalists Improve the Survival Profile of IPO Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(9&10), pages 1139-1183.
- Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
- 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.
- Terttu Luukkonen, & Mari Maunula,, 2006. "Coaching Small Biotech Companies into Success: The Value-adding Function of VC," Discussion Papers 1032, The Research Institute of the Finnish Economy.
- Luukkonen, Terttu & Maunula, Mari, 2007. "Non-financial Value-added of Venture Capital: A Comparative Study of Different Venture Capital Investors," Discussion Papers 1067, The Research Institute of the Finnish Economy.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kaija Hyvönen-Rajecki).
If references are entirely missing, you can add them using this form.