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Understanding Strategies of the Venture Capital Investors in Helping Their Portfolio Firms to Become International

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  • Luukkonen, Terttu
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    Abstract

    This paper reports the findings of two empirical studies on the value-added of venture capital with special attention on promoting internationalisation of start-up firms. The first study is based on a survey of Finnish (and a few cross-border) venture capital organisations on the value-adding mechanisms they use with regard to their portfolio firms. The second study is based on interviews with Finnish biotechnology start-ups. Attention is paid specifically to the strategies of three different types of investors in early-stage high growth companies : 1) business angels, which can be regarded as informal venture capitalists, 2) private-sector venture capital firms and 3) public-sector venture capital organisations. Control of agency costs and risks provides a conceptual framework for analysing the strategies of the different investor types. The findings partially corroborate and partially refute the hypotheses made on the basis of theory and the two studies provide somewhat conflicting findings on the role and strategies of the different investor types. According to the venture capital survey, private sector venture capital firms were most actively engaged in ex post monitoring and ‘coaching’ of their portfolio firms in internationalisation, while according to the biotechnology study, business angels turned out to be most actively engaged. The paper discusses potential reasons for these divergent findings.

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    Bibliographic Info

    Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1099.

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    Length: 24 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:rif:dpaper:1099

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    Keywords: venture capital; internationalisation of start-ups;

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    1. 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.
    2. Hart, Oliver, 1995. "Corporate Governance: Some Theory and Implications," Economic Journal, Royal Economic Society, vol. 105(430), pages 678-89, May.
    3. 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.
    4. Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July.
    5. Dorothea Schäfer & Dirk Schilder, 2006. "Informed Capital in a Hostile Environment: The Case of Relational Investors in Germany," Discussion Papers of DIW Berlin 549, DIW Berlin, German Institute for Economic Research.
    6. 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.
    7. 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.
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