Entrepreneurs' Access to Private Equity in China: The Role of Social Capital
Drawing on Social network theory, this article argues for enhancing effects of social capital of entrepreneurs on investment selection decisions of venture capitalists (to invest versus not to invest), and main effects of social capital on investment process decisions such as venture valuation, investment delivery speed and contractual warrants/provisions. The core idea of enhancing effects is that the presence of particularistic ties between venture capitalists and entrepreneurs will affect positively investment selection decisions of venture capitalists if only other main factors for investment making such as management team, industry, market attractiveness, proprietary technologies and products are perceived as strong by investors. The context of the study is People's Republic of China. The empirical data is composed of 158 venture capital investment decisions in Beijing and Shanghai. The main finding is that social capital is supplementary and additive to other investment determining factors such as project and team qualities at selection stage, and social capital is a main factor for investment process decisions once a venture has been selected for funding. The main theoretical implication is that social capital may affect outcome variables in interaction with other factors. The main practical implication for entrepreneurs is that social capital is probably necessary but insufficient for raising venture capital successfully.
|Date of creation:||01 Apr 2002|
|Date of revision:|
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- Hall, John & Hofer, Charles W., 1993. "Venture capitalists' decision criteria in new venture evaluation," Journal of Business Venturing, Elsevier, vol. 8(1), pages 25-42, January.
- Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-89, December.
- Zacharakis, Andrew L. & Shepherd, Dean A., 2001. "The nature of information and overconfidence on venture capitalists' decision making," Journal of Business Venturing, Elsevier, vol. 16(4), pages 311-332, July.
- Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January.
- Steven N. Kaplan & Per Stromberg, 2001. "Venture Capitalists As Principals: Contracting, Screening, and Monitoring," NBER Working Papers 8202, National Bureau of Economic Research, Inc.
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