ABSTRACT : The paper reports an empirical study on the overall importance and non-financial value-added provided by Venture Capital (VC) investors to their investee firms in biotechnology. The study compares the characteristics of firms that have obtained VC funding with those of firms that have not. Furthermore, it pays attention to the activities and non-financial value-added by different types of VC organization : informal investors (business angels), public sector VCs, and private sector VCs. The study data was collected through a survey and interviews at the end of 2005 with the total population of small and medium-sized biotech companies established in Finland since 1986 - 85 companies, 95 % of which participated in the study. VC investors indeed provided both financial and non-financial value-added to their investee firms. All three VC types, informal investors, public sector VCs, and private sector VCs, had somewhat different investment profiles in terms of firm type and age, and therefore, we may conclude that they are not alternatives to, but complement each other. Central findings of the study included an observation that all three VC types were fairly active in their activities vis-à-vis their investee firms. Nevertheless, they differed in terms of the overall perceived value-added as well as their activity profiles. Informal investors were found to have the highest overall value-added and kept closest contacts with their investee firms. It is, however, to be noted that informal investors invested in the youngest firms and therefore their advice and support was probably most needed. Overall, public sector VCs performed nearly as well as private sector VCs, contrary to expectations based on previous research literature on the subject.
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Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number
1057.