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Venture capital firms' preferences for projects in particular stages of development
... Investments made by these firms across different stages are subject to varying levels of risks in an uncertain environment wherein an entrepreneur faces an imperfect capital market and an investor faces problems of moral hazard, asymmetric information, and adverse selection (Akerlof, 1978;Amit et al., 1998;Wang & Zhou, 2004). Consequently, VCPE firms have developed their own criteria to identify the stage of investment in order to manage the risks and ensure optimum returns (Carter & Van Auken, 1994). A VCPE firm may decide to invest in different stages (early or late) of an enterprise, but the criteria for decision-making at each stage may be different based on the time scale and the risk levels involved. ...
... Studies in the developed and emerging economies on investment strategies of VCPE firms have identified adoption of stage-wise investing by these firms as a means for risk-return trade-offs, diversification or specialization strategies, or simply a mechanism to earn better returns (Carter & Van Auken, 1994;Gompers, 1995;Gupta & Sapienza, 1992;Norton & Tenenbaum, 1993). Earlier studies also suggest that the riskreturn assessment of VCPE firms while investing across stages is likely to be affected by factors like inherent risk of the venture, size of the investment, type of industry, and the physical location of the investee company (Carter & Van Auken, 1994;Gompers & Lerner, 2001). ...
... Studies in the developed and emerging economies on investment strategies of VCPE firms have identified adoption of stage-wise investing by these firms as a means for risk-return trade-offs, diversification or specialization strategies, or simply a mechanism to earn better returns (Carter & Van Auken, 1994;Gompers, 1995;Gupta & Sapienza, 1992;Norton & Tenenbaum, 1993). Earlier studies also suggest that the riskreturn assessment of VCPE firms while investing across stages is likely to be affected by factors like inherent risk of the venture, size of the investment, type of industry, and the physical location of the investee company (Carter & Van Auken, 1994;Gompers & Lerner, 2001). However, very few studies have explored the determinants of investment by stages and there exists no such study in the context of emerging economies like India. ...
This article is a maiden attempt at exploring determinants of stage-specific investment choices of Indian venture capital and private equity (VCPE) firms. Analysis of 5,782 VCPE investment deals during 1998–2016 shows that firms’ preferences to invest in various stages (early vs. late) are significantly affected by the characteristics of the VCPE firms, features of the deal, and characteristics of the investee firms. More specifically, experience and ownership (foreign vs. domestic) of VCPE firm, type of deal (syndicated or otherwise), investment size of the deal, and location and industry of the investee firm influence the stage of investment. Detailed empirical analysis shows that younger VCPE firms and those with domestic investors prefer to invest in early stages, presumably because they wish to build a reputation and also leverage their proximity with investee firms to manage high market and technological risks associated with early-stage investments. Syndication is another mechanism used to manage the risks associated with early-stage deals. Investee firms in industries that have lower investment requirements or shorter gestation periods and those located in regions with a mature entrepreneurial ecosystems are more likely to attract early-stage investments.
JEL Classification: G24, L26, D81
... However, increasing competition between the venture capitalists has created a need to allocate more time to deal generation process (Sweeting, 1991;Shepherd et al., 2005). In a similar vein, early stage venture capitalists exposed to information asymmetries and adverse selection problems (Amit et al., 1990) spend a significant amount of time and effort in evaluating and screening early stage investment opportunities (Carter and Van Auken, 1994;Kaplan and Strömberg, 2001). ...
... First, venture capital contracts typically give investors cash-flow rights, voting rights, board rights, liquidation rights, as well as non-compete and vesting provisions . Prior studies suggest that these rights are more often granted to early stage investors, fraught with information asymmetries and hold-up problems (Carter and Van Auken, 1994;Kaplan and Strömberg, 2001;Cumming et al., 2006b). Second, there is some empirical evidence indicating that convertible preferred equity may minimize the expected agency problems associated with start-up and expansion stage investments (see, for instance, Gompers, 1997;Bascha and Waltz, 2001;Kaplan and Strömberg, 2001;Cumming 2002), 4 whereas debt and common stock are more appropriate at the later stages of venture financing (Trester, 1998). ...
... As an evidence of a more hands-on role of early stage investors, several scholars found that they spend more time with their portfolio companies than later stage investors (Barney et al., 1989;Gorman and Sahlman, 1989;Sapienza and Gupta, 1994). In a similar vein, early stage investors are reported to be more eager to require corrective actions, such as changes in management, if the new venture fails to not live up to the expectations (Carter and Van Auken, 1994;Hellman and Puri, 2002). However, there exists some contradicting evidence suggesting that portfolio companies receive more venture capitalists' attention as they mature (Gomez-Mejia et al., 1990). ...
... A continuación, realiza el due diligence y evalúa si la propuesta cumple con toda una serie de criterios que las entidades de capital riesgo tienen en cuenta a la hora de efectuar las valoraciones (Macmillan et al., 1985;Tyebjee y Bruno, 1984). Se valora la capacidad del proyecto para alcanzar las tasas de rentabilidad fijadas como objetivo por la ECR, la etapa de desarrollo en que se encuentra la empresa candidata Norton y Tenenbaum, 1993;Carter y Van Auken, 1994; y la viabilidad de la propuesta (Manigart et al., 1998). En definitiva, con el due diligence se pretende atenuar los problemas de información asimétrica (Wright y Robbie, 1996). ...
... Unos autores muestran que el uso de estos criterios de inversión y su importancia relativa dependen de la existencia de problemas de información asimétrica (Barry, 1994;Fried y Hisrich, 1994). Otros sugieren que los problemas de información asimétrica y la capacidad de los gestores para hacer frente a esos problemas están relacionados con características propias de la ECR, como el origen público o privado de sus recursos financieros, el uso de la intuición del gestor o la estrategia de inversión empleada (Carter y Van Auken, 1994;Zacharakis y Shepherd, 2001). ...
... Nuestra hipótesis es que la heterogeneidad existente entre los distintos tipos de gestores y ECR conlleva al empleo de diferentes cláusulas contractuales. En este sentido, la etapa de desarrollo del proyecto (Norton y Tenenbaum, 1993;Barry, 1994;Carter y Van Auken, 1994;, la cautividad o independencia en el levantamiento de fondos (Hassan y Leece, 2008) y el origen público o privado de los recursos financieros de la ECR Brander et al., , 2010 son características que pueden influir en la redacción del contrato de participación financiera. ...
... Strategic Groups = ƒ{resource-emphasis} Venture capital firms have different risk preferences, and as a result prefer to offer equity funding at different stages of an entrepreneurial firm's development. Risk varies by financing stage (Carter & Van Auken, 1994;Gupta & Sapienza, 1988;Ruhnka & Young, 1991;Tybejee and Bruno (1984: VC investment activity)). 13 For example, Ruhnka and Young (1991) found that early stage investments contained a higher amount 13 It is important to note here that there are different types of risk, each having a different meaning for different investors. ...
... Because early stage investments are in entrepreneurial firms typically wrought with internal-based risks, venture capitalists emphasize monitoring and offering management assistance to help overcome these risks (Barry, Muscarella, Peavy, & Vetsuypens, 1990;Carter & Van Auken, 1994;Gompers, 1995;Gorman & Sahlman, 1989;Rosenstein, Bruno, Bygrave, & Taylor, 1993;Sapienza, 1992;Sapienza & Amason, 1993). 14 Venture capitalists involved in early stage financing give high priority to providing professional services to the entrepreneurial firms they serve. ...
... Venture capital firms often differentiate themselves by specializing in the timing of when they fund entrepreneurial firms (Carter & Van Auken, 1994;Lam, 1991). A brief synopsis of the stages, as described by Houlihan Valuation Advisors (1998), is as follows: ...
... The last dimension of diversification refers to the stage of development of the investee companies (that is, early stage vs. established companies) and diversification here means choosing to invest at several different stages, a "balanced" fund approach. Carter and Van Auken (1994) showed that, in order to effectively add value to companies operating in different stages of the life-cycle, VC investors require a range of supporting skills and capabilities. This means that there is a trade-off between increasing returns from better deal flow and losses occurring from mistakes as learning takes place. ...
... In particular, they argue that the high level of uncertainty characterizing earlystage companies induces VCs to include a smaller number of companies in their portfolio and to specialize in given industries. In a similar vein, Carter and Van Auken (1994) showed that VC firms tend also to specialize in specific corporate development stages, in which their acquired expertise can produce greater value. ...
... It has become very popular in finance as a reliable measure of portfolio diversification (Woerheide and Persson 1993). We computed two different Herfindahl Complement measures of diversification of the portfolio investments of a VC fund to capture the different dimensions of diversification identified in the literature (Carter and Van Auken 1994;De Clerq et al. 2001;Gupta and Sapienza 1992), namely by industry and geographic area. We referred to the classification of Venture Expert in order to assign each company in the portfolio to a given industry and geographic area, and to compute by that the diversification measures described below. ...
The paper tests different theories of how diversification by Venture Capital (VC) firms affects fund performance. The Financial Intermediation and the Resource-based Theory suggest that lower financial risk associated with diversification implies a lower return. However, the assumptions of these theories are questionable in the context of venture capital. We test their validity using data on VC portfolio diversification by industry and country using an original dataset of 649 VC funds originating in the United Kingdom over the period 1981–2000. Results show that higher diversification by industry does indeed lower VC fund success rates. Diversification by geographical region, on the contrary, increases returns.
... Venture capital investment of capital is similar to buying an option to participate in the subsequent stages of company development. The company's stage of development directly impacts the VC's investment analysis, especially as related to the risk assessment and return potential (Carter and Van Auken 1994). Venture capitalists would require higher expected rates of return for early-stage investments as compared to late-stage investments due to the greater risk exposure. ...
... Specializing by stage of development allows them to balance investment risk, portfolio diversification, and return potential. Investing in specific geographical locations permits greater opportunity to influence and advise firms in which they invest (Cano and Cazorla 1998;Carter and Van Auken 1994;Barry 1994;Norton and Tenenbaum 1993). Gupta and Sapienza (1992) show that VC firms that specialized in the early stage of development prefer less diversification and close geographic proximity to the firms in which they invest than VC firms that invest in late stages. ...
... One method that venture capitalists often use to manage agency and signaling issues is that of specializing by stage of development (Cano and Cazorla 1998;Gupta and Sapienza 1992). Specialization allows them to develop and provide expanded networks and better understand their risk exposure (Carter and Van Auken 1994;Norton and Tenenbaum 1993). ...
This paper examines the investment decisions of 51 Spanish venture capital firms by stage of development. The results showed that venture capitalists ranked evaluation criteria related to the characteristics of the entrepreneurs, manager background, and management team experience as more important than market and product characteristics. Factors affecting the required rate of return were more important for the early-stage firms than for late-stage firms. Discounted cash flow analysis is the most frequently used valuation method. Private venture capital firms invest more during late development stages, while public venture capital firms invest more during the early stages. The results can be used by firms seeking venture capital, venture capital firms, consultants, and support agencies that provide capital-acquisition assistance. By gaining insight into decision criteria and processes, firms can develop better and more targeted materials to attract capital. Venture capital firms can use the information from this study to better understand their decision processes, individually and relative to competitors. Consultants and support agencies can use the information to provide better advice to both firms and venture capital firms. Information is this study could easily be built into training programs for both new and existing businesses. Finally, the results can also be incorporated directly into university courses that include material related to venture capital.
... These risks are related to internal (Management and its leadership) and external domain (industry it operates in) of the company. Carter and Auken (1994) identified the same idea of risk that the risk profile related to the early stage of investment is different from other others stages of investment. Risk faced by the venture capitalists in different countries should be different according to the market structures, operating financial systems, the legal and economic environment of the country. ...
... These differences are based on the economic circumstances, institutional view, culture outlook and different experiences of the venture capitalists; ultimately we can say that institutional theory supports these results. Risk Management Carter and Auken (1994) tried to identify that the risk profile of early stage investments is different from that of the late stage investments but they didn't find any significant differences. Both kinds of investments have the same kind of risk profile i.e. internal and external risk factors. ...
... Les capacités de l'entreprise à réaliser l'innovation sont mises à l'épreuve. La perte de projets et de PME est souvent attribuée à l'incompétence de gestion, à un produit mal développé ou à un échec technique (St-Pierre, 1996;Carter et Van Auken, 1994;Ricketts Gaskill et al., 1993). Mais le facteur le plus critique semble être la capacité de l'entreprise à estimer le potentiel de marché de l'innovation (Roy et Kirallah, 1996). ...
... L'exhaustivité mais aussi la précision et la fiabilité de l'information obtenue peuvent faire obstacle à l'utilisation de méthodes conventionnelles par les PME innovantes. En concomitance avec les difficultés d'évaluer le potentiel de marché, vient l'incertitude de la demande du marché pour l'innovation (Carter et Van Auken, 1994). À nouveau, la précision et la fiabilité de l'information peuvent affecter l'intérêt, aux yeux des PME, d'évaluer un projet d'innova-tion à partir de méthodes conventionnelles. ...
Lorsqu’elles sont confrontées à des décisions d’investissement, les petites et moyennes
entreprises (PME) n'utilisent que rarement les méthodes conventionnelles d'évaluation de
projet telles que le critère de la valeur actuelle nette (VAN). Mais outre le manque de
compétences financières, on s'interroge sur les raisons susceptibles de freiner l'implantation de
ces méthodes d'évaluation dans le milieu des PME. L’évaluation d’un projet d’innovation au
sein d’une entreprise artisanale décèle des difficultés liées à la qualité de l’information dans
l’utilisation du critère de la VAN pour décider de la rentabilité du projet. L’analyse de
l’incertitude à partir de scénarios et d’analyses de sensibilité montre que le faible accès à
l’information de marché de même que l’attitude des fournisseurs et de l’entrepreneur
pourraient particulièrement faire obstacle à l’utilisation de cette méthode. D’autre part, on
remarque l’importance de l’incertitude liée à l’approvisionnement et le rôle de l’État dans
l’accès à l’information. En réponse aux obstacles observés, l'étude suggère le réseautage
d’entreprises pour faciliter l'implantation des méthodes conventionnelles auprès des PME.
... Another perceived flaw was the focus on investments in a specific stage in a firm's life cycle, where good investment opportunities would be missed based on the simple fact that the firm was either too young or too mature in relation to established investment policy (cf. Carter & Van Auken 1994): ...
... By analysing historical documentation from both private and public sources, Hsu observes that the ARD investment practices did not fit into any clearly defined category of 'development stage of a venture' or 'industrial segment', suggesting also that these practices did not remain constant over time. Whilst venture capital firms are commonly differentiated according to strategic preferences for industry diversity, geographic scope (Gupta & Sapienza 1992;De Clercq, Goulet, Kumpulainen & Mäkelä 2001), stages of development (Carter & Van Auken 1994), risk avoidance (Fiet 1995), or quality of technology (Jungwirth & Moog 2004), ARD lived a philosophy that transcended market segmentations. ...
... However, Fried and Hisrich, (1994) and Tyebjee and Bruno, (1984) show the importance of market characteristics such as a significant potential for earnings and market growth as well as the competitive conditions. According to Poindexter (1976) and Pandey and Jang (1996) (Norton and Tenenbaum, 1983;Hall, 1989;Barry, 1994;Carter and Van Auken, 1994;Ramón et al., 2007), the geographic focus of the investments (Gupta and Sapienza, 1992), the captivity or independence in fundraising (Ramón et al. 2007), the public or private origin of the resources (Leleux and Surlemont, 2003;Cornelius, 2005;Brander et al., 2009;Brander et al., 2010;Ramón et al., 2007;Munari and Toschi, 2010), the reliance on his own venture capitalist intuition to evaluate the investment (Khan, 1987;MacMillan et al., 1987;Ray, 1991;Ray and Turpin, 1993;Zacharakis and Shepherd, 2001), and the legal type of the venture capital company (Carzorla et al., 1997) are characteristics that might influence the making decision process. In this paper we focus our attention on the origin of the resources, the importance of the intuition, the stage of development of the investment, and the legal type of the venture capital company. ...
... According to Gupta and Sapienza (1992), Norton and Tenenbaum (1993), Ruhnka and Young (1991) and Carter and Van Auken (1994) variations in the investment criteria used by venture capitalists during the evaluation of business proposals might also arise due to different objectives regarding the investment strategy of the venture capital company. Existing literature suggests that significant differences across venture capital companies are dependent on their investment strategy, i.e., the stage of development of the projects where they prefer to invest (Robinson, 1987;Kenney, 1988a, 1988b;Sapienza and Timmons, 1989;Fried and Hisrich, 1991;Bygrave and Timmons, 1992;Elango et al., 1995). ...
This paper uses a survey dataset of 51 Venture Capital Companies to address a segmentation of the venture capital industry. Our paper yields two specific contributions. First, we analyze in a Continental European bank-based system the most important investment criteria identified by previous empirical literature. Second, we show that existing differences in the use of the investment criteria depend on the specific characteristics of the venture capital companies. Therefore, the same business proposal might obtain different decisions depending on the venture company that the entrepreneur approaches. Our paper provides a better insight into the screening process of venture capitalists and the results have clear implications for entrepreneurs and venture capital companies. The knowledge of what investment criteria are most important to venture capitalists might help entrepreneurs to elaborate better proposals, addressing them to the most suitable venture capital company. El presente estudio usa una encuesta postal realizada a 51 entidades de capital riesgo (ECR) con el objetivo de establecer diferentes tipologías de gestores y de empresas en la industria del capital riesgo. Nuestro trabajo realiza dos contribuciones específicas. En primer lugar, analizamos para el modelo bancario de la Europa Continental aquellos criterios de selección de inversiones más importantes identificados en la literatura empírica previa. En segundo lugar, mostramos que las diferencias en el uso de los criterios de selección de inversiones dependen de las características de las ECR. Por tanto, una misma propuesta de negocio podría obtener diferentes respuestas según la ECR que la evalúe. Nuestro trabajo proporciona una mejor comprensión del proceso de selección realizado por los gestores, y los resultados tienen claras implicaciones tanto para los empresarios como para las ECR. Conocer cuáles son los principales criterios de selección de inversiones podría ayudar a los empresarios a elaborar mejores propuestas, y buscar la financiación en ECR más adecuadas.
... Les capacités de l'entreprise à réaliser l'innovation sont mises à l'épreuve. La perte de projets et de PME est souvent attribuée à l'incompétence de gestion, à un produit mal développé ou à un échec technique (St-Pierre, 1996;Carter et Van Auken, 1994;Ricketts Gaskill et al., 1993). Mais le facteur le plus critique semble être la capacité de l'entreprise à estimer le potentiel de marché de l'innovation (Roy et Kirallah, 1996). ...
... L'exhaustivité mais aussi la précision et la fiabilité de l'information obtenue peuvent faire obstacle à l'utilisation de méthodes conventionnelles par les PME innovantes. En concomitance avec les difficultés d'évaluer le potentiel de marché, vient l'incertitude de la demande du marché pour l'innovation (Carter et Van Auken, 1994). À nouveau, la précision et la fiabilité de l'information peuvent affecter l'intérêt, aux yeux des PME, d'évaluer un projet d'innova-tion à partir de méthodes conventionnelles. ...
Lorsqu’elles sont confrontées à des décisions d’investissement, les petites et moyennes entreprises (PME) n'utilisent que rarement les méthodes conventionnelles d'évaluation de projet telles que le critère de la valeur actuelle nette (VAN). Mais outre le manque de compétences financières, on s'interroge sur les raisons susceptibles de freiner l'implantation de ces méthodes d'évaluation dans le milieu des PME. L’évaluation d’un projet d’innovation au sein d’une entreprise artisanale décèle des difficultés liées à la qualité de l’information dans
l’utilisation du critère de la VAN pour décider de la rentabilité du projet. L’analyse de l’incertitude à partir de scénarios et d’analyses de sensibilité montre que le faible accès à l’information de marché de même que l’attitude des fournisseurs et de l’entrepreneur
pourraient particulièrement faire obstacle à l’utilisation de cette méthode. D’autre part, on remarque l’importance de l’incertitude liée à l’approvisionnement et le rôle de l’État dans l’accès à l’information. En réponse aux obstacles observés, l'étude suggère le réseautage
d’entreprises pour faciliter l'implantation des méthodes conventionnelles auprès des PME.
... Based on a review of studies on start-up investment decision determinants (Shepherd and Zacharakis, 1999), the most important criteria relate to the entrepreneur and the management team; the product being offered, including its feasibility and uniqueness; industry growth and attractiveness; and financial considerations, including projections and expected rate of return. Although some studies comparing investment criteria at different stages (early vs. late) have found no significant differences (Carter and Van Auken, 1994; Elango et al., 1995), others have concluded that investors evaluate similar categories of criteria (those identified above) with some variation within them (Birley et al., 1999). These are discussed below, leading to a series of hypotheses. ...
... Financial performance measures have been widely used by venture capitalists, who assess the viability of start-up investments by considering financial projections or expected rates of return (MacMillan et al., 1985; Riquelme and Rickards, 1992). Previous studies on financial criteria used to evaluate later-stage investments have not found significant differences compared to start-up evaluation (Birley et al., 1999; Carter and Van Auken, 1994; Elango et al., 1995). Although an investee firm that is already achieving high profitability may limit the potential for upside for a PE house (Wright et al., 2001), PE investors are expected to be more likely to invest in firms that already display positive performance, rather than pursue turnaround situations which greatly increase risk. ...
This paper examines decision-making models used by private equity investors in their selection of family firms. Building on literature on investment criteria at start-up stage, a series of hypotheses is put forward, based on decision-making, strategic management and buyout theories. The theoretical model is tested through an experimental design for which data have been collected among 41 respondents based in Italy. Findings are analysed using hierarchical linear models, in order to investigate which criteria are used, assess their relative importance and test whether decision-making models are individual-specific or influenced by the firm individuals work for.
... Venture capital firms can also add value to start-ups through offering industry-specific expertise, such as knowledge about and connections with suppliers, distributors, and customers (MacMillan, Kulow, and Khoylian, 1989; see also Fried and Hisrich, 1995). Venture capital firms can also take care of different needs associated with the developmental stages of a startup's life (e.g., Carter and Van Auken, 1994;Gorman and Sahlman, 1989;Young, 1987, 1991). ...
... Venture capital firms operate differently in terms of whether they are involved with investments at different stages. Each specific stage of a start-up's development requires correspondingly specific know-how on the part of the venture capital firm (Carter and Van Auken, 1994;Ruhnka and Young, 1987). For example, a venture capital firm involved in early-stage investing must capitalize on knowledge about product commercialization, setting up a business, and hiring quality managers, as well as targeting and selling to an appropriate market. ...
What is the relationship between niche and performance? We identify two types of niche positions—product niche and process niche—defined by the extent to which a firm offers distinctive products and has distinctive operational processes, respectively. We argue that the effect of each niche on firm performance is contingent upon network embeddedness—the extent to which a firm is involved in a network of interconnected inter-firm relationships. Using data covering the period 1995–98 pertaining to venture capital firms and their holdings in initial public offerings (IPOs), we show that both product niche and process niche interact with network embeddedness to determine firm performance. Our findings suggest that the extent to which a firm offers distinctive products or processes will be more positively associated with firm performance when network embeddedness is high. Copyright © 2004 John Wiley & Sons, Ltd.
... Venture capital firms' industry preferences then determine which companies are able to access capital. Just as Carter said, finding capital can be a time-consuming but necessary task for businesses [2]. Especially in the context of continuous interest rate hikes in the United States in 2023 and constant geopolitical conflicts around the world, capital is more cautious about investment. ...
Since the effects of geopolitics and recession, venture capital deals have become more cautious and companies' access to capital has become more difficult. Therefore, this research will analyze 2023 U.S. venture capital deal data to explore venture capitalists' preference for the corporate industry. In previous similar studies, visual graphics were essential, which was also applied in this study. At the same time, OLS regression model was also used for verification in this research. The results show that in 2023, U.S. venture capital deals favor the technology industry, especially the two hot spots of artificial intelligence and biotechnology. There is a positive linear relationship between venture capital investment and corporate hot spots. When the company industry moves closer to the technology industry, the amount of venture capital investment increases significantly. However, the November-December data is still to be added. Forecasting the future preferences of the venture capital trading industry is also an issue that needs to be addressed. Finally, on the basis of previous studies, this paper also provides some meaningful results for venture capital market participants, hoping to help improve the efficiency of venture capital market.
... Though the general objective of this due diligence process is to gain a thorough understanding of all business aspects, the focus of investigation may vary from deal to deal (Silver, 1985;Dixon, 1989). The venture capitalists professional experience is crucial to the general effectiveness of the evaluation process (Carter and Van Auken, 1994;Silver, 1985). ...
... A business model is considered as a means for value creation, delivery, and capturing (Teece, 2010). We distinguish entrepreneurs' personalities (Chavez, 2016), venture capitalists' preferences (Carter and Van Auken, 1994), and the quality of the pitch (Kunte et al., 2018) from the business model. Figure 2 distinguishes the different elements in this study. ...
This paper seeks to find out what makes a business model uninvestable. In particular, the study explores the reasons for venture capitalists’ rejection decisions on entrepreneurs’ proposals. The study digs into rejected cases in the American Shark Tank TV show as the source of secondary data. Data is transcribed, coded, synthesised, narratives are built, and storytelling techniques are applied to present the findings. The study deviates from the mainstream research on business models, based on primary data. In doing so, the study bridges between the business model research and communication sciences.
... Though the general objective of this due diligence process is to gain a thorough understanding of all business aspects, the focus of investigation may vary from deal to deal (Silver, 1985;Dixon, 1989). The venture capitalists professional experience is crucial to the general effectiveness of the evaluation process (Carter and Van Auken, 1994;Silver, 1985). ...
... i.e. deal sourcing, scope-specific screening, generic screening, firstphase evaluation, second-phase evaluation, deal closing, post-investment activities and exit strategy (Wells, 1974;Tyebjee and Bruno, 1984;Hall, 1989;Fried and Hisrich, 1994;Boocock and Woods, 1997;Bliss, 1999;Silva, 2004). According to various studies (Dorsey, 1979;Tyebjee and Bruno, 1984;Bygrave and Timmons, 1992;Zacharakis and Meyer, 1999), a greater chance of success for the investor can be obtained by improving the investment decision making strategy. The use of more effective criteria during the assessment process could therefore increase the probability of success in the so-called picking winner's problem. ...
What assessment criteria are most widely used by equity investors during their funding decisions? In the context of the so-called picking winner’s problem, which aspect do they consider most? Is it the jockey (entrepreneurial team), the horse (product/service), the race-track (market) or the odds (financials) to make the difference? Despite the investment evaluation funnel being very selective, about 35% of the venture-backed firms actually fail and, considering a conservative estimate, an additional 20% doesn’t provide the expected return on investment. The data therefore indicate that the investment process has large room for improvement.
This paper is a systematic literature review of the research about the assessment criteria used by equity investors (venture capital and angel investors) during their investment decision making process.
The research is designed around three research questions. RQ.1: what are the criteria used by equity investors to support their decision-making process in venture funding? RQ.2: what are the investment criteria that have been most discussed in the literature? RQ.3: which aspects of the company are mostly assessed by investors? After screening the abstract of 894 unique journal publications, 53 articles were selected for a detailed analysis. The criteria mentioned in every study were registered and 208 distinct drivers were identified. The criteria were classified into 35 specific categories, 11 generic classes and 4 main domains of analysis (respectively related to the venture, the investor, the risks factors and the environment). The high detail and granularity of the analysis is one of the added values of this work compared with previous literature.
The authors propose a new approach to research, based on the use of large databases on ventures funding (e.g. Crunchbase). By analysing data on thousands of actual investments, researchers could introduce a radical change of perspective in this field of research.
... These capabilities are often augmented by syndication, which leads to a broadening of the pool of skills and knowledge relevant for evaluating early-stage venture (e.g. Carter and Van Auken 1994;Manigart et al. 2006;Brander, Amit, and Antweiler 2002). ...
A venture capitalist (VC) needs to trade off benefits and costs when attempting to mitigate agency problems in their investor-investee relationship. We argue that signals of ventures complement the VC's capacity to screen and conduct a due diligence during the preinvestment phase, but its attractiveness may diminish in institutional settings supporting greater transparency. Similarly, whereas a VC may opt for contractual covenants to curb potential opportunism by ventures in the postinvestment phase, this may only be effective in settings supportive of shareholder rights enforcement. Using an international sample of VC contracts, our study finds broad support for these conjectures. It delineates theoretical and practical implications for how investors can best deploy their capital in different institutional settings while nurturing their relationships with entrepreneurs.
... Likewise, Norton and Tenenbaum (1993) found that specialists in early stage ventures were less diversified in terms of firms and industries invested in with subsequent information-sharing the dominant motive for such specialisation. Stage specialisation of VCs, defined as the tendency of certain VCs to focus on early or late stage investments is also examined in Carter and Van Auken (1994). 9 What theoretical reasons do PE companies have for specialisation? ...
... Although Stromberg (1999, 2001) stated that more than a third of VC investments in the USA occur when the firms have not yet obtained profits, several studies have concluded that VCs are somewhat reluctant to finance earlystage firms (Pellón 1999;Hulsink, Van der Meer & Meeusen-Henniger, 1999;Jud & Kremshofer, 2000) and prefer firms in a more advanced phase (Timmons & Sapienza, 1992;Timmons & Bygrave, 1997). The financing of firms in the initial phase directly affects the VCs' investment analysis, especially with respect to assessing the risk and potential return (Carter & Van Auken, 1994;Pintado et al., 2007). ...
In this paper, we contribute to the literature on access to venture capital during the pre-start-up phase of innovative firms by identifying the reasons for failing to obtaining formal VC according to nascent entrepreneurs. The main reasons cited for not obtaining venture financing were the small size of the VC market and limited public policies to support venture capital participation. The sub-sample of nascent entrepreneurs who based their financing proposals on more complete business plans included "lack of interest of the venture capitalists in pre start-up phase investments" as the number one reason.
... This can be useful for the entrepreneur to know when narrowing down the potential investors to approach and how to customize the business plan. (Gorman & Sahlman, 1989;Carter & van Auken, 1994) ...
... Interestingly, the quality of the management team was not a primary criterion for rejection at any phase of the evaluation process (Petty & Gruber, 2011). To add to the confusion, there is some evidence suggesting that venture capitalists do not use different evaluation criteria depending on the stage of development of the venture under consideration (Carter & Van Auken, 1994), although it is known that investors face different types of risk and have different concerns in early and later stage deals (Parhankangas, 2007). In any case, it is clear that these inconclusive and even contradictory results contribute to fuel the central debate about the relative importance of entrepreneur vs. product/market considerations, and justify a call for further research into the topic of what criteria matter most at what stage of deal and venture development. ...
n this study, we examine whether there is a relationship between the three key espoused criteria that early-stage investors use for evaluating new venture opportunities (the entrepreneurial team, the market potential and the product/service) and subsequent new venture performance.
... One line of research shows that the use of investment criteria and their relative importance depend on the existence of asymmetric information problems (Barry, 1994; Fried and Hisrich, 1994). A related line of literature suggests that asymmetric information problems as well as the ability and incentives of venture capitalists to overcome those problems are related to characteristics such as the origin of the resources, the use of intuition or the investment strategy (Carter and Van Auken, 1994; Leleux and Surlemont, 2003; Zacharakis and Shepherd, 2001). One direct implication of the above studies is the existence of a link between the characteristics of the venture capital company and the investment criteria applied during the due diligence. ...
This paper uses a survey dataset of 51 Venture Capital Companies to address a segmentation of the venturecapital industry. Our paper yields two specific contributions. First, we analyze in a Continental European bank-based system the most important investment criteria identified by previous empirical literature. Second, we show that existing differences in the use of the investment criteria depend on the existence of asymmetric information problems associated to specific characteristics of the venture capital companies. Knowing what investment criteria are the most important for venture capitalists might help both entrepreneurs to elaborate better proposals, and venture capitalists to improve their decision process and achieve better survival rates.
... This view is supported in the venture capital literature. Venture capital firms spend extensive time and effort on the screening and evaluation of new ventures (Carter and van Auken, 1994;Kaplan and Strömberg, 2001). While methods used include quantitative techniques (to assess the risk/return ratio) there is ample evidence of widespread use of qualitative evaluation. ...
... Although Stromberg (1999, 2001) states that over a third of the VCs' investments in the USA are made when the firms have not yet obtained profits, several studies concluded that the VCs are somewhat reluctant to finance the earlystage of firms (Pellón 1999) and prefer firms in a more advanced phase (Timmons, Sapienza 1992;Timmons, Bygrave 1997). The financing of the initial phase of firms directly affects the VCs' investment analysis, especially as regards the assessment of the risk and potential return (Carter, Van Auken 1994;Pintado et al. 2007). ...
This paper has been an attempt to investigate the reasons underlying the lack of success in obtaining the venture capital financing. We did so from the demand perspective using a sample of 63 Portuguese nascent entrepreneurs that were not successful when, during the pre start–up phase of their innovative firms, they attempted to obtain VC financing. The main reasons cited for not obtaining VC financing were: 1) small size of the VC market in Portugal; 2) limited public policies to support VC participation; 3) lack of interest of the VCs in pre start-up phase investments; 4) unwillingness of VC suppliers to provide small amounts of capital.
... Many studies suggest that firm performance is affected by strategy (Wernerfelt 1984;Teece et al. 1997;Boeker 1997;Zahra et al. 2000;Canals 2000). According to the resource-based theory 2 , resources play a pivotal role in strategy formulation. ...
The Korean government has driven the venture capital market since KTB Network was created in 1981 to provide capital to the high tech firms. Due to the venture policy, the venture capital market has undergone a compressed growth in a short period of time. In 1986, the government enacted the “Small and Medium Business Start-up Support Act” and “Finance Act to Support New Technology Businesses” to provide legal bases to establish venture capital (VC) firms. The government pushed the VC firms to carry out equity investments on small and medium businesses within the age of 7 years. Hence, the Korea Development Bank Capital and TG Venture, the archetypes of today’s VC firms, have been established to finance high tech firms such as Medison, Mirae, and Sambo Computer (Lee 2003). In spite of the efforts made by the government, until the mid-1990s, there were problems in constructing the venture capital market, due to poor system to finance technology and lack of policy measures to support the high tech firms. There was no exit system to liquidize the equity investments, and most of the investment targets were from mature industries which brought low returns. Further debt financing was preferred to equity investment because of the low risk and high interest rate.
This paper is organized as follows. Chapter 2 presents the literature reviewed and the hypotheses proposed. In Chap. 3, methodologies are presented while in Chap. 4, the data and the variables are presented. In Chap. 5, the effect of asset composition strategies on operating efficiency is estimated and analyzed. In Chap. 6, the estimation results are reviewed and policy implications addressed.
... It has become common to categorise the financing provided by VCs into different " stages " (Sahlman 1990); Early stage financing (Seed and Start up financing), Expansion stage financing (early development, expansion, late expansion and mezzanine financing) and Acquisition/buy out financing (LBO, MBO, turnaround). VCs are usually specialised in one or more of these stages (Sahlman 1990, Carter & Van Auken, 1994). Some VCs are concentrate on entering very early, that is when the company is developing a new product or service. ...
Venture capitalists are specialists in developing small, potentially high growth companies (portfolio companies) by becoming active owners in those firms. The open and fundamental objective of a true venture capitalist, when investing, is to realise a substantial profit on the investment after a number of years. The realisation or ending of venture capitalists involvement is usually called the exit. The venture capital process ends with one of the following four exit vehicles (or methods); (i) initial public offering (IPO), (ii), trade sale, (iii) buyback or MBO/MBI, and (iv) write-off, reconstruction, liquidation or bankruptcy. The purpose of this paper is to describe and explain the exit mechanisms used in Sweden to improve the understanding of venture capital exit problems. This paper presents some preliminary results of a survey send to all venture capital companies in Sweden. The survey describes the venture capitalists exit strategies (i e how the venture capitalist think and plan the exit) and behaviour (i. e. the actual exit method and actions) in particular. While trade sale exits have been the most common performed exit, IPO exits are the most preferred exit mechanism by the Swedish venture capital firms. In 1997 a shift occurred and more IPOs than trade sales were performed. Despite that IPO is the most preferred exit strategy among the total population of venture capital firms, no one of the government owned firms are aiming towards IPOs. Furthermore, the majority of the firms in the survey show active exit behaviour and thus indicate that exit behaviour is an important part of the venture capital process.
... Gupta and Sapienza's work (1992) seems to confirm previous data. Carter and Van Auken (1994) showed that a large bulk of VC firms tend to specialize in specific industries and development stages, so to acquire expertise and gain greater value. ...
This paper examines the impact of the degree of specialization of private equity firms on the post-buyout performance of acquired companies. We establish theoretically the likely effects of three different dimensions of specialization: the affiliation of the PE firm (independent vs. captive) together with its industry and stage focus. We then test our hypotheses on a sample of 89 UK buyouts, with a control group of 89 private companies matched by size and industry. In line with the predictions of the resource-based view of the firm, our results show that buyouts by more specialized PE firms tend to have higher post-buyout profitability levels.
(CITE AS: Cressy, R., Malipiero, A., Munari, F. (2007), “Playing to their strengths. Evidence that specialization in the Private Equity industry confers competitive advantage”, Journal of Corporate Finance, ,13(4): 647-669
... We also included the stage of the venture as a control since venture stage has been demonstrated to be of importance to VC financing decisions (e.g., Sapienza and Timmons 1989). VCs can become involved in a venture at various stages, including the seed stage or the later rounds of refinancing; the extent of involvement and type of contributions of the investor may range accordingly (Carter and Van Auken 1994; Ruhnka and Young 1987). Although we do not deliver formal hypotheses, we expect that in the deal structuring stage of the decision-making process, the stage of the venture will be not be directly related to the level of financing but will be negatively associated with the extent of structure established for the venture. ...
This exploratory study examines the deal structuring stage of the venture capitalist decision-making process. Here, the primary issues of concern are investor confidence and potential control of a venture in relation to the level of financing the investor provides and the structure with which the funding is delivered. Confidence comes in support of the entrepreneur, the venture itself, or a combination of the two, prior to capital transfer, but after the initial “invest or not invest” decision has already occurred. Findings support a multicriteria perspective of the pre-investment decision-making process and a distinct difference between entrepreneur confidence and venture confidence in the deal structuring stage.
... Third, the paper contributes to investor decision making literature which, to date, has focused on startup selection (Franke et al., 2006;MacMillan et al., 1985;Meyer et al., 1993;Muzyka et al., 1996;Riquelme and Rickards, 1992;Shepherd, 1999;Shepherd et al., 2003;Bruno, 1981, 1984;Zacharakis and Meyer, 2000;Shepherd, 1999, 2001). Investment decisions in family firms have received little attention (Birley et al., 1999;Carter and Van Auken, 1994;Elango et al., 1995), despite the fact that family businesses account for a large proportion of investments, particularly in Europe, and are the single largest receiver of PE in some major European economies, including Italy, France, and the UK (CMBOR, 2005). ...
This study examines decision making criteria that are employed by private equity (PE) investors selecting family firms. Hypotheses test the likelihood of investment based on family firm characteristics. Findings show that PE professionals take into account family-specific criteria, including human resources and opportunities to reduce agency costs. Furthermore, PE professionals prefer family firms that are already professionalized. This research contributes to the family firm literature on both a theoretical and a methodological level, exploring nonfamily succession routes and employing techniques-- conjoint analysis for data collection and multilevel models for data analysis-- that have seldom been used in this context.
Research Summary
This article investigates venture capital (VC) decision‐making, a process that occurs under changing conditions and limited, ambiguous information. We shed new light on the inherent dynamics of this strategic process. One of the key distinguishing features of our study is its unprecedented access to the internal decision‐making process of a VC firm. By analyzing unique, longitudinal data capturing 2,383 proposal selection processes conducted over the life of one venture capital fund, we show how decision‐making speed and the information cues that decision makers rely upon will, over time, change in systematic and predictable ways. Specifically, our approach allows us to identify fundamental, unexplored patterns with respect to the selection process as a whole and the multiple stages within the process.
Managerial Summary
Each year venture capitalists receive hundreds of investment proposals, but is every proposal received by a venture capitalist processed equally? In this study, we show how the source of a proposal and the available amount of investment capital, factors that are not contained within the pages of a proposal, may influence the investment decision‐making process. Our results highlight the impact of being referred to a venture capitalist by a trusted source, as more time is spent evaluating these proposals and they proceed further along in the process. We also find that venture capitalists process proposals more quickly as the capital in the fund is invested over the life of the fund.
We use agency theory to model equity division in venture capital financing with three complementary value-creation factors—the entrepreneur's effort, the venture capitalist's advising/monitoring service, and the investment amount. While considering that investors often base their funding decisions on gut feeling, even as they employ rational decision-making processes, we derive closed-form expressions for optimal ownership sharing. Our findings provide theoretical explanation to support the recent call for practitioners to allocate ownership equity based on the relative potential contributions of the entrepreneur and the venture capitalist to generate value for the new investment prospect.
Entrepreneurs are involved in entrepreneurial ecosystems. These ecosystems incorporate institutions that interact with entrepreneurs in different ways depending on the stage of the business life cycle the entrepreneur is in. By incorporating institutional theory and business life cycle theory to the analysis of ecosystems, we propose which kind of institution will answer the entrepreneurial question addressing who is there to help their venture depending on the stage of the life cycle it is in. This paper seeks to provide guidance on the institutional support available to increase a venture’s chance of success and improve the efficiency of the resource base of ecosystems.
The dominant technique used to evidence certification effects at IPO is to employ the degree of underpricing as a proxy for certification. We investigate the appropriateness of this proxy in the context of private equity backed IPOs. Our results reveal an incongruence between certification by the vendor and expectations of underpricing. We also find expectations of underpricing are driven by reduced informational asymmetries between the vendor and the vendor’s broker rather than between the vendor and the market. Our conclusion is that underpricing is too noisy a variable to be a reliable proxy for certification in this context.
The article focuses on research into the dynamics of investment analysis and decision making in venture capital (VC) financing. The four criteria for VC investment decisions, six activities in the VC decision process, and two characteristics of VC decision research are discussed as well as constraints on the VC firm or the knapsack problem. Dynamic aspects of the VC decision-making process that the author says should be added to the established models of the VC process include multiple feedback loops.
The selection of a firm for venture capital investment is not an easy task for any investor and so it is important to decide certain factors based on which a firm will be selected for the investment. This paper is based on the 104 responses generated through fund managers, venture capitalists, managers of financial institutions, bank managers etc. and examined two important aspects, first the factors used by venture capitalists to evaluate an IT in order to make investment decisions and second the importance of factors across different investors. This study was conducted in 2014 to find out the important aspects affecting decision making process while selecting an Information Technology firm. We have analyzed the qualitative and quantitative aspects suggested by the previous studies and studied the relationship between choice of factors among different investors and assigning weightage for them with respect to screening of an IT firm for investment.
This study determines the most important funding criteria of Venture Capitalists while doing valuation of an information technology firms for investment decision in Indian perspective. The study analyzes social, economical and financial objectives of Venture Capitalists while selecting an IT firm for venture capital funding decision. This paper is based on 104 responses generated through a structured questionnaire, based on previous empirical literature. Our paper provides two important contributions. First, we determine the key objectives based on financial, social, and economical aspects of Venture Capitalist for valuation process of an IT firm for funding decision. Second we analyze the difference in weight assignments by different investors during the screening process of valuating an IT firm for funding decision. The paper investigated that during the process of screening, venture capitalists give more importance to factors like promotional objectives followed by growth, development, marketing & leadership ability and risk valuation factors, financial objectives of the firm and economical objectives of the investment.
This research presents a synthesis of the results of past studies on direct (or informal) investment in small business. Direct investment can be characterized as unguaranteed capital provided by individuals without any family relations to the financed businesses and in the absence of any intermediation. The individuals providing the financing are known in the literature as “angels”. As contrasted to past publications on the subject, this research adopts the point of view of the company seeking financing and attempts to provide answers to the following typical questions. Who are the angels and what types of investments do they undertake? How do they analyse possible companies for investment, and according to what criteria do they choose the companies financed? What are the conditions and costs of this type of financing, and what is the overall supply of direct capital? The survey indicates that direct investment is a material contribution to small business financing in spite of the impossibility of its precise evaluation. Past research provides a general description of the characteristics of direct investors and the unstructured networks by which they are linked. Finally, the analysis of the methods employed by angels to undertake direct financing activities permits the identification of certain advantages and problems specific to direct investment and some suggestions for small companies wishing to obtain access to this type of financing.
In the following article I not only aim at giving a comprehensive overview, but at integrating contemporary research on PE into a comprehensive model of PE investment. In doing so, I point out new avenues for future research and the methodological challenges. Finally, I attempt to look at the opportunities for interdisciplinary knowledge transfer to strategic management (SM) and international business (IB) research. I argue that the lessons of PE research offer a unique opportunity to (re)discover the “liabilities side” of strategy and international business.
Purpose
– The purpose of this paper is to identify the importance assigned to the various criteria used by the Portuguese venture capitalists (VCs) to evaluate and select early stage venture capital (VC) projects.
Design/methodology/approach
– The data were collected through a questionnaire answered by 20 Portuguese VCs. The authors use descriptive statistics techniques and non-parametric tests to identify the most valued criteria and test differences in the importance assigned to the criteria of several types of VCs and investments.
Findings
– The study reveals that personality and experience of the entrepreneur and of the management team are the most valued groups of criteria. VCs with a majority of private share capital value more the personality of the entrepreneur and management team than the companies with a majority of public share capital. Additionally, the VCs that did not yet internationalize consider the personality of the entrepreneur and management team and the financial aspects, to be more important than the VCs that have already expanded abroad.
Originality/value
– It provides evidence on the VCs behavior in a small VC market. Since most of the existing literature on this area refer to large VC markets, the present study is important to investigate whether the conclusions reached by the previous studies can be extended to a small VC market. Also, this study is a contribution to the literature on the internationalization of VCs and it is the first study that explores the impact of the VCs being internationalized on the value given to the various selection criteria of early stage VC projects.
The paper provides an empirical analysis of the patenting activity of a sample of Western European manufacturing firms undergoing a buyout between 1998 and 2004. A panel data design is used to test whether the characteristics of the deal and of private equity (PE) firms can affect acquired companies’ subsequent innovation effort as measured by the number of patents granted by the EPO. Results support the view that the innovation activity of portfolio firms is affected by different types of investors, pursuing different objectives and differing in their risk propensity, expected returns and investment policies. The characteristics of lead investors (size, stage specialization, geographical location) and of the deal (amount invested, presence of multiple investors) are also investigated and are found to differently affect the post-buyout innovation activity of sample firms.
Purpose
– The purpose of this paper is to focus on the investigation of the venture capital investment process in the emerging markets of Central and Eastern Europe (CEE), including Hungary, Poland, the Czech Republic, Slovakia, Romania, and Russia. The study aims to describe the mechanics by which venture capital firms operating in the CEE region process deals.
Design/methodology/approach
– The paper is based on a two‐phase interview interaction process with venture capitalists operating in the CEE region. In the first semi‐structured (exploratory) phase of the study, 14 venture capitalists agreed to participate in one‐hour interview and aimed at discussing their venture capital process. In the second phase of the study (confirmatory), 24 venture capital firms commented on the actual fit of the proposed nine‐stage model into their past investments.
Findings
– The study has two conclusions. Firstly, the study confirms the existence of a nine‐stage venture capital investment model, comprised of deal origination, initial screening, feedback from the investment committee and due diligence Phase I, feedback from the investment committee (due diligence Phase I), pre‐approval completions, formal approvals and due diligence Phase II, deal completion, monitoring, and exit. Secondly, the proposed model defines the venture capital process in terms of three channels of activity: document channel, information channel, and decision channel.
Originality/value
– The study is important for at least four reasons. Firstly, the study focuses on the investigation of the entire venture capital process. Previous research in the area focuses on some specific facets of the venture capital process. Secondly, the paper investigates the connection between decision‐making, information gathering and written communication within a venture capital fund. Thirdly, the study focuses on the most recent period of development of the CEE industry. Many venture capital firms only recently crystallized their venture capital process. Lastly, the study proposes areas of further research for academics and makes suggestions for practitioners.
Small and medium‐sized enterprises (SMEs) innovate and invest in new technologies much more than was thought until recently. Some do so in a radical way, others in an extensive way. They can easily be compared to large enterprises if we exclude SMEs in specific niches, and those which are not in a competitive environment.
The perception that SMEs were slow to innovate or use new technologies compared to large enterprises stems from the belief that SMEs were short of resources, and in particular, short of financial resources. Many studies have shown that the financial structure of SMEs is not significantly different from that of large enterprises, except for the importance of short‐term financing. Such financing, taking into account the seesaw cost evolution of R&D and technological improvements, might prove problematic for very innovative or high‐technology SMEs, particularly in the R&D stage of the innovation development, or in the structural technological change phase, where the level of uncertainty eliminates access to regular financial markets. In this case, state intervention would be appropriate. The state could work in association with SMEs and financial institutions, to adapt programs and to inform SMEs of the range of risk financing possibilities at every stage of the innovation process. Similarity, financial institutions should review the way they participate in the financing of SMEs and revise their risk‐appraisal models.
Résumé
Les PME font beaucoup plus d'innovation et recourent beaucoup plus aux nouvelles technologies que l'on croyait il y a encore quelque temps. Quelques‐unes le font de façon radicale et un bon nombre de façon importante. Elles peuvent ainsi mieux se comparer aux grandes entreprises si on exclut les petites firmes oeuvrant sur des créneaux spécifiques ou échappant plus ou moins aux pressions concurrentielles.
La croyance dans le retard des PME venait notamment du fait que l'on disait qu'elles manquaient de ressources, financières en particulier, comparées aux grandes entreprises; ce manque de ressources présumé venant agir comme un frein à leur développement. Plusieurs études ont montré que la structure financière des PME n'est pas tellement différente de celle des grandes, ce qui contredirait un bon nombre de préjugés à l'égard des PME, sauf quant à l'importance du financement à court terme. Mais, un tel financement, compte tenu de l'évolution en dents de scie des coûts de R et D et de la modernisation des procédés, peut poser un problème chez les PME particulièrement innovatrices ou de haute technologic notamment dans la phase de recherche et de développement ou de changement structurel technologique, alors que l'incertitude qui s'en suit exclut tout recours aux marchés financiers réguliers. Il convient dans ce dernier cas que l'État, de concert avec les entreprises, présente des programmes mieux adaptés et s'applique avec le système financier à mieux diffuser auprès des PME l'énsemble des possibilités de financement de risque disponibles aux différents stades du processus d'innovation. De même, le système financier doit revoir ses façons de participer au financement de ces entreprises, en révisant ses modèles d'appréciation des risques.
Stages of Growth models were the most frequent theoretical approach to understanding entrepreneurial business growth from 1962 to 2006; they built on the growth imperative and developmental models of that time. However, our analysis of the universe of such models (N=104) published in the management literature shows neither a consensus on basic constructs nor any empirical confirmations of stages theory. We show that with a change in the basic assumption and two propositions of the stages approach, a "dynamic states" model of organizational growth and change can be derived that has far greater explanatory power than its precursor.
This paper analyzes how VC firms evaluate the patent portfolios of start-up companies in their financing decisions. On one hand, we determine whether the amount of VCs' financing is associated with three dimensions related to technological portfolios: patent counts, patent scope and the number of core technology patents. On the other hand, we examine whether the valuation of patents in the financing decisions varies across different types of VC firms, depending on their degree of industry specialization and affiliation. We provide empirical evidence from a sample of 332 VC-backed companies in the nanotechnology sector.
The efficiency of incubators in the creation of innovative enterprises: The case of Tunisia
Innovation is a key element in the creation of new economic and social wealth. The innovation process is very often related to the emergence of new innovative and technological firms and to the entrepreneurial motivations and behaviours. Tunisia is engaged in a dynamic public policy to develop innovation and technological entrepreneurship. In this way, in each region of Tunisia technological incubators are set up and seen as powerful structures to help entrepreneurs and facilitate their entrepreneurial processes from the opportunity identification to the launching of new firm activities. In this research, keeping in mind the importance and the stakes of technological entrepreneurship as a social and economic phenomenon, we are addressing the question of how we can improve our understanding on the efficiency of such structures in the Tunisian context. To answer our main question, we conducted a survey using a sample of 120 nascent entrepreneurs incubated in 11 Tunisian incubators. Our results show that the innovation systems at the local level are still in an emergent phase and should be reinforced to bring more and stronger help to nascent technological entrepreneurs.
JEL code: M13
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