IDEAS home Printed from https://ideas.repec.org/p/rif/dpaper/1032.html
   My bibliography  Save this paper

Coaching Small Biotech Companies into Success: The Value-adding Function of VC

Author

Listed:
  • Terttu Luukkonen,
  • Mari Maunula,

Abstract

The paper reports an empirical study on the non-financial value-added provided by Venture Capital investors to their investee firms. This study will use a four-class grouping of the various non-financial value-adding capabilities provided by VC firms, namely, scouting, monitoring, signalling and value-adding services. The study examines biotechnology industry in Finland. Finland has a dual system with independent (partially ever-green) VC companies and public or semi-public VC organisations. Additionally, informal VCs are fairly active. Whether the different types of VC organisation aim, are able and indeed do deliver non-financial value-added, in addition to their financial input, is the central focus of this study. The paper has an evolutionary perspective on Venture Capital according to which VC promotes a variety of experimentation with new technologies, especially through the foundation of new firms oriented to experimentation and development of new ideas. At the same time, VC industry fulfils a selection function in its role as a financial intermediary. The study data have been collected through interviews, conducted at the end of 2005, with the total population of small and medium-sized, VC-backed biotech companies established in Finland since 1986. Central findings of the study include an observation that all three VC types did provide value-added in the meaning outlined above. Nevertheless, there were clear differences between them in terms of the overall perceived value-added as well as in their activity profiles. Informal investors were found to have the highest overall value-added and kept closest contacts with their investee firms.

Suggested Citation

  • 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.
    • Handle: RePEc:rif:dpaper:1032
    as

    Download full text from publisher

    File URL: http://www.etla.fi/wp-content/uploads/2012/09/dp1032.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mitchell Berlin, 1998. "That thing venture capitalist do," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 15-26.
    2. Paul Gompers & Josh Lerner, 2006. "The Venture Capital Cycle, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572389, December.
    3. Maunula, Mari, 2006. "The Perceived Value-added of Venture Capital Investors. Evidence from Finnish Biotechnology Industry," Discussion Papers 1030, The Research Institute of the Finnish Economy.
    4. Walter Powell & Kenneth Koput & James Bowie & Laurel Smith-Doerr, 2002. "The Spatial Clustering of Science and Capital: Accounting for Biotech Firm-Venture Capital Relationships," Regional Studies, Taylor & Francis Journals, vol. 36(3), pages 291-305.
    5. Luukkonen, Terttu, 2005. "Variability in organisational forms of biotechnology firms," Research Policy, Elsevier, vol. 34(4), pages 555-570, May.
    6. Hyytinen, Ari & Pajarinen, Mika (ed.), . "Financial Systems and Firm Performance. Theoretical and Empirical Perspectives," ETLA B, The Research Institute of the Finnish Economy, number 200.
    7. Jan Fagerberg, 2003. "Schumpeter and the revival of evolutionary economics: an appraisal of the literature," Journal of Evolutionary Economics, Springer, vol. 13(2), pages 125-159, April.
    8. Michael Fritsch & Dirk Schilder, 2008. "Does Venture Capital Investment Really Require Spatial Proximity? An Empirical Investigation," Environment and Planning A, , vol. 40(9), pages 2114-2131, September.
    9. 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.
    10. Baum, Joel A. C. & Silverman, Brian S., 2004. "Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology startups," Journal of Business Venturing, Elsevier, vol. 19(3), pages 411-436, May.
    11. 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.
    12. Avnimelech, Gil & Teubal, Morris, 2006. "Creating venture capital industries that co-evolve with high tech: Insights from an extended industry life cycle perspective of the Israeli experience," Research Policy, Elsevier, vol. 35(10), pages 1477-1498, December.
    13. Schäfer, Dorothea & Schilder, Dirk, 2006. "Informed capital in a hostile environment: the case of relational investors in Germany," Freiberg Working Papers 2006/03, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
    14. 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.
    15. Dosi, Giovanni & Nelson, Richard R, 1994. "An Introduction to Evolutionary Theories in Economics," Journal of Evolutionary Economics, Springer, vol. 4(3), pages 153-172, September.
    16. 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.
    17. Carlota Perez, 2002. "Technological Revolutions and Financial Capital," Books, Edward Elgar Publishing, number 2640.
    18. Teubal, Morris & Luukkonen, Terttu, 2006. "Venture Capital Industries and Policies: Some Cross-Country Comparisons," Discussion Papers 1006, The Research Institute of the Finnish Economy.
    19. Christopher Palmberg, 2004. "The sources of innovations - looking beyond technological opportunities," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(2), pages 183-197.
    20. Schilder, Dirk, 2006. "Public venture capital in Germany: task force or forced task?," Freiberg Working Papers 2006/12, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.

    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. Luukkonen, Terttu, 2008. "Different Types of Venture Capital Investors and Value-added to High-Tech Portfolio Firms," Discussion Papers 1149, The Research Institute of the Finnish Economy.
    2. 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.
    3. Maunula, Mari, 2006. "The Perceived Value-added of Venture Capital Investors. Evidence from Finnish Biotechnology Industry," Discussion Papers 1030, The Research Institute of the Finnish Economy.
    4. Michael Fritsch & Dirk Schilder, 2008. "Does Venture Capital Investment Really Require Spatial Proximity? An Empirical Investigation," Environment and Planning A, , vol. 40(9), pages 2114-2131, September.
    5. 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.
    6. Michael Fritsch & Dirk Schilder, 2006. "Is Venture Capital a regional business? – The role of syndication," Papers on Entrepreneurship, Growth and Public Policy 2006-25, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    7. Luukkonen, Terttu, 2007. "Understanding Strategies of the Venture Capital Investors in Helping Their Portfolio Firms to Become International," Discussion Papers 1099, The Research Institute of the Finnish Economy.
    8. Ferretti, Marco & Guerini, Massimiliano & Panetti, Eva & Parmentola, Adele, 2022. "The partner next door? The effect of micro-geographical proximity on intra-cluster inter-organizational relationships," Technovation, Elsevier, vol. 111(C).
    9. M. Knockaert & T. Vanacker, 2011. "The Association between Venture Capitalists’ Selection and Value Adding Behavior: Evidence from Early Stage High Tech Venture Capitalists," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/741, Ghent University, Faculty of Economics and Business Administration.
    10. Dorothea Schäfer & Dirk Schilder, 2008. "Smart capital in German start-ups -- an empirical analysis," Venture Capital, Taylor & Francis Journals, vol. 11(2), pages 163-183, August.
    11. Christos Kolympiris & Sebastian Hoenen & Nicholas Kalaitzandonakes, 2018. "Geographic distance between venture capitalists and target firms and the value of quality signals," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(1), pages 189-220.
    12. Evila Piva & Cristina Rossi-Lamastra, 2018. "Human capital signals and entrepreneurs’ success in equity crowdfunding," Small Business Economics, Springer, vol. 51(3), pages 667-686, October.
    13. Mirjam Knockaert & Tom Vanacker, 2013. "The association between venture capitalists’ selection and value adding behavior: evidence from early stage high tech venture capitalists," Small Business Economics, Springer, vol. 40(3), pages 493-509, April.
    14. Colombo, Massimo G. & Grilli, Luca, 2010. "On growth drivers of high-tech start-ups: Exploring the role of founders' human capital and venture capital," Journal of Business Venturing, Elsevier, vol. 25(6), pages 610-626, November.
    15. Michael Fritsch & Dirk Schilder, 2012. "The Regional Supply of Venture Capital: Can Syndication Overcome Bottlenecks?," Economic Geography, Taylor & Francis Journals, vol. 88(1), pages 59-76, January.
    16. Schilder, Dirk, 2006. "Public venture capital in Germany: task force or forced task?," Freiberg Working Papers 2006/12, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
    17. Fabio Bertoni & Annalisa Croce & Diego D'Adda, 2009. "Venture capital investments and patenting activity of high-tech start-ups: a micro-econometric firm-level analysis," Venture Capital, Taylor & Francis Journals, vol. 12(4), pages 307-326, November.
    18. Arqué-Castells, Pere, 2012. "How venture capitalists spur invention in Spain: Evidence from patent trajectories," Research Policy, Elsevier, vol. 41(5), pages 897-912.
    19. Jiangjing Que & Xueyong Zhang, 2020. "The role of foreign and domestic venture capital in innovation: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 1077-1110, April.
    20. Josée St-Pierre & Théophile Serge Nomo & Kristina Pilaeva, 2010. "The non-financial contribution of venture capitalists to VC-backed SMEs: the case of traditional sectors," Venture Capital, Taylor & Francis Journals, vol. 13(2), pages 103-118, October.

    More about this item

    Keywords

    venture capital; biotechnology;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:rif:dpaper:1032. 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: Kaija Hyvönen-Rajecki (email available below). General contact details of provider: https://edirc.repec.org/data/etlaafi.html .

    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.