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Different Types of Venture Capital Investors and Value-added to High-Tech Portfolio Firms

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  • Luukkonen, Terttu

Abstract

This paper examines the knowhow in strategic business areas that venture capital companies and organizations impart to their portfolio firms in early-stage high-tech enterprises and the mechanisms they use to impart this knowledge. The paper considers three types of investors, independent, private-sector venture capital firms, public-sector venture capital organizations, and business angels, who can be regarded as informal venture capital investors. The study draws on a limited data set to illustrate their activities. The paper draws attention to different theoretical approaches that might explain the observed behaviour. It examines whether the differences are related to the intermediary position of each investor type and subsequent incentives they have in doing their jobs - especially expounded by contract-based approaches - or the competencies in doing their jobs based on competence-based view of the firms. It turns out that neither approach alone can account for the observed behaviour. It is claimed that the two different types of rationales have interactive relations thus reinforcing the observed patterns of behaviour. Thus an active involvement both ex ante and ex post by the private sector venture capital firms might be the result of both factors at work. Another important finding relates to the role of public sector venture capital organizations as the most passive among the investor types. This leads the paper to suggest a reconsideration of the role of the public sector organisations in venture capital activity.

Suggested Citation

  • 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.
  • Handle: RePEc:rif:dpaper:1149
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    References listed on IDEAS

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    4. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    5. 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.
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    More about this item

    Keywords

    venture capital; high tech startups; non-financial value-added;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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