closing the regional equity gap a critique of the department of trade and industry s regional venture capital funds initiative mason c m and harrison r t 2003 closing the regional equity gap a critique of the department of trade and industry s regional venture capital funds initiative reg studies 37 855 868 the uk labour government has provided support for the establishment of regional venture capital funds in each of the english regions as part of its drive to create an entrepreneurially led knowledge based economy this initiative is a response to persistent gaps in the provision of start up and early stage venture capital in this paper we question the likely effectiveness of the initiative on four counts first there is a lack of early stage venture capital skills available to manage the funds second the small size of the funds will make it difficult for them to achieve financial viability third the funds are targeting the wrong problem the maximum investment that they are allowed to make is 250 000 they may subsequently provide up to an additional 250 000 in follow on financing however the main fundin

a lack of insight do venture capitalists really understand their own decision process abstract what decision criteria do venture capitalists vcs use to make their investment decisions this question has received much attention within entrepreneurship literature i e wells 1974 poindexter 1976 tyebjee and bruno 1984 macmillan seigel and subba narasimha 1985 macmillan zeman and subba narasimha 1987 robinson 1987 timmons et al 1987 sandberg schweiger and hofer 1988 hall and hofer 1993 zacharakis and meyer 1995 for a number of reasons first vc backed ventures achieve a higher survival rate than non vc backed businesses kunkel and hofer 1990 sandberg 1986 timmons 1994 second a better understanding of the decision process may lead to even better survival rates finally entrepreneurs seeking venture funding benefit if they understand what factors are most important to the vc although past research has greatly contributed to our understanding of the decision it may be biased and somewhat misleading the majority of past studies rely on post hoc methodologies e g interviews and surveys to capture the decision process post hoc methods assume that vcs can accurately relate their own decision processes but studies from cognitive psychology suggest that people in particular experts are poor at introspecting introspection is subject to rationalization and post hoc recall biases using social judgment theory and the associated lens model as a framework the current study investigates how well vcs introspect about their own decision process and by extension whether the past research efforts are biased the current research uses policy capturing a real time method common in cognitive psychology to capture the vc s actual theories in use versus their espoused theories hitt and tyler 1991 policy capturing requires that vcs make a series of real time decisions based on various information factors regression analysis of each vcs decision captures how important each of the information factors is to her his actual decision process after the vcs make their decisions they provided a weighting of how they believe they used the information factors comparing the captured decision policies to stated decision policies provides a measure of vc insight the findings suggest that vcs are not good at introspecting about their own decision process even within the confines of a controlled experiment which greatly reduces the amount of information considered vcs lacked strong understanding of how they made decisions most decision makers would like to have all relevant information available for their decision however as more information becomes available insight diminishes finally this study finds that vcs are very consistent in their decision process even though they do not necessarily understand how they make their decisions vcs face a plethora of information when making an investment decision i e business plan outside consultants due diligence etc it may be difficult for vcs to truly understand their intuitive decision process because of all the noise caused by this information overload this lack of systematic understanding impedes learning vcs cannot make accurate adjustments to their evaluation process if they do not truly understand it therefore vcs may suffer from a systematic bias that impedes the performance of their investment portfolio the methodology used in this experiment can be modified and used as a training tool for active vcs in addition the consistent nature of vc decision making even if they do not have a strong understanding of that process is favorable to the development of decision aides decision aides can minimize the danger of salient information e g the lead entrepreneur is a winner clouding the vc s judgment past research also needs to be interpreted in a new light although vcs undoubtedly use some of the information cited in past studies the relative importance of that information needs to be reevaluated vcs may not for instance rely most on the background of the entrepreneurial team in addition it is likely that the past studies provide more information factors than vcs actually use people have a tendency to overstate the information they believe they relied upon and to use far less information typically three to seven factors to make a decision than they actually think they use the methodology used in this experiment has the potential to identify the more relevant information factors cited in previous work even though vcs are experts in the new venture funding realm their decision process has room for improvement almost 40 of all backed ventures fail to provide a return to the vc considering the billions invested each year a modest improvement in the failure rate can have a substantial impact on venture portfolio returns that improvement starts by better understanding the decision process this study is a step in that direction

creating an environment for venture capital in india abstract the institution of venture capitalism is a difficult one to initiate through policy intervention particularly in developing countries with unstable macroeconomic environments and histories of state involvement in the use of national capital and in the composition of production india has all these constraints the emergence of a thriving software services industry after 1985 created the raw material that venture capital could finance thus achieving a critical precondition for venture capital s growth it was followed by efforts to create a venture capital industry after several setbacks some success has been achieved largely due to a slow process of moulding the environment of rules and permissible institutions the process was assisted by the role of overseas indians in silicon valley s success in the 1990s yet in terms of what is needed most of the work remains to be done inevitably this will be the result of joint work by policymakers and practitioners

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

the association between venture capitalists selection and value adding behavior evidence from early stage high tech venture capitalists building upon self efficacy and collective effort theories we study the association between the selection behavior of venture capitalists and their involvement in value adding activities we argue that investors who prioritize different characteristics of a business proposal during selection will be more or less confident of their own abilities and the abilities of entrepreneurial teams to effectively add value to portfolio companies and hence will be more or less involved in providing value adding activities in order to test this claim we use a stratified sample comprising 68 european early stage high tech venture capitalists results show that venture capitalists who focus on entrepreneurial team characteristics or financial criteria during selection are less involved in value adding activities compared to their peers who focus on technological criteria we discuss these findings from a theoretical and practical perspective

competitive dynamics and economic learning an extended resource based view in this paper a conceptual framework for the analysis of economic learning is developed economic learning by analogy with organizational learning results in the development of economic competences or capabilities shared between firms which rest on a foundation of economic resources from which value is generated and economic routines through which resources are utilized it is the mobility of resources and their exchange and production dynamics along evolutionary pathways which underpins the plausibility of a notion of economic learning the paper elaborates this framework as a resource based view rbv of the economy as a whole as an extension of the rbv of the firm such a framework captures the dynamics of exchange and circulation of technologies know how and intangible assets as well as of tangible assets and capital goods it is concerned with investment behavior by entrepreneurs rather than with the behavior of producers and consumers in goods and services markets within this resource economy framework it is possible to generate an account of the resource dynamics that underpin production of goods and services including resource propagation diffusion imitation replication and recombination these processes encompass evolutionary pressures experienced through resource variation selection and retention entrepreneurial initiatives take the form of resource recombinations while resource innovation captures the creation of new economic resources such as technological standards such a perspective brings into focus the resource specialization and configurations that drive real economies within firms and between firms that translates into enhanced or diminished performance of the economy as a whole copyright 2003 oxford university press

venture capital the regions and public policy the united kingdom since the post 2000 technology crash mason c and pierrakis y venture capital the regions and public policy the united kingdom since the post 2000 technology crash regional studies the geography of venture capital in the united kingdom has been shaped since the year 2000 by a significant increase in public sector venture capital funds venture capital investments are now less concentrated in the south east however investment activity in the midlands and north is dominated by the public sector deal sizes in these regions are small venture capital measured by the total amount invested remains over concentrated in london and the south east where private sector investors continue to dominate this paper concludes by questioning whether this increased dependence of northern regions on public sector venture capital matters mason c and pierrakis y 2000 2000

venture capitalists as principals contracting screening and monitoring there is a large academic literature on the principal agent problem in financial contracting this literature focuses on the conflicts of interest between an agent who is an entrepreneur with a venture that needs financing and a principal who is the investor providing the funds for the venture theory has identified a number of ways that the investor principal can mitigate these conflicts first the investor can structure financial contracts i e the allocation of cash flow and control rights between the entrepreneur and investor to provide incentives for the entrepreneur to behave optimally second the investor can engage in information collection before deciding whether to invest in order to screen out ex ante unprofitable projects and bad entrepreneurs and third the investor can engage in information collection and monitoring once the project is under way despite the large volume of theory empirical work has lagged behind in comparing the contracts and actions of real world principals to their counterparts in financial contracting theory in this paper we describe recent empirical work and its relation to theory for one prominent class of such principals venture capitalists vc s in our view vc s are real world entities that closely approximate the investors of theory vc s invest in entrepreneurs who need financing to fund a promising project or company vc s have strong incentives to maximize value but at the same time receive few or no private benefits of control although they are intermediaries vc s typically receive at least 20 percent of the profits on their portfolios see paul gompers and josh lerner 1999 in addition to being interesting from a theoretical perspective vc actions and contracts of are interesting from a practical perspective vc s have been extremely successful in the last several years i they have been associated with a number of the prominent corporate successes like ariba cisco ebay and yahoo ii they have generated substantial returns and wealth for their investors and iii they have raised and invested record amounts of money

determinants of the incidence and scale of seed capital investments by venture capital firms employing both behavioral decision making and agency theories our study seeks to identify those factors that influence a venture capital vc firm s decision to undertake seed capital investments and subsequently the scale of such activity using data on the investments made by 2949 vc funds raised worldwide between 1962 and 2002 we find investor age timing of investment and fund location to be of importance in addition the size of the fund and the existing number of portfolio firms exert opposite influences on the level of seed capital activity of the vc firm these results suggest that seed activity is a valuable source of market intelligence for leading vc firms seeking proactively to identify and invest in novel technologies

the relationship between governance structure and risk management approaches in japanese venture capital firms abstract this paper attempts to understand what drives japanese venture capital jvc fund managers to select either active managerial monitoring or portfolio diversification to manage their firms investment risks j bus venturing 4 1989 231 unlike u s venture capitalists that use active managerial monitoring to gain private information in order to maximize returns j finance 50 1995 301 jvcs have traditionally used portfolio diversification to attenuate investment risks hamada y 2001 nihon no bencha kyapitaru no genkyo current state of japanese venture capital nihon bencha gakkai vc seminar may 7 we found that performance pay is positively related to active monitoring and that management ownership is positively related to active monitoring and negatively related to portfolio diversification the managerial implication of our study is that venture capitalists should be as concerned about the structure of their incentive systems for their fund managers as they are for their investee firm entrepreneurs agency theory says that contingent compensation is a self governing mechanism for individual effort that is difficult to measure and verify when properly applied equity ownership and performance based pay can have powerful influencing effects on the strategic choices of managers

limited attention and the role of the venture capitalist abstract this research analyzes the venture capitalist s incentives to maximize the profits of the entrepreneurs of ventures and the limited partners of a venture fund venture capital is a professionally managed pool of capital invested in equity linked private ventures entrepreneurs turn to venture capitalists for financing because high technology startup firms have low or negative cash flows which prevent them from borrowing or issuing equity in addition venture capitalists are actively involved in management of the venture to assure its success this solves the problem of startup firms that do not have the cash flows to hire management consultants venture capital contracts have three main characteristics 1 staging the commitment of capital and preserving the option to abandon 2 using compensation systems directly linked to value creation and 3 preserving ways to force management to distribute investment proceeds these characteristics address three fundamental problems 1 sorting the venture capital among the entrepreneurial ventures 2 providing incentives to motivate venture capitalists to maximize the value of the funded ventures and 3 providing incentives to motivate entrepreneurs to maximize the value of the ventures venture capitalists fund only about a dozen projects a year out of a thousand evaluated each project may receive several rounds of financing payoffs to vcs can be very high or be a complete loss the typical venture capital vc firm is organized as a limited partnership with the venture capitalists serving as general partners and the investors as limited partners general partner vcs act as agents for the limited partners in investing their funds vcs invest their human capital by placing their reputation on the line the goal is to begin to convert the investment into cash or marketable securities which are distributed to the partners vc management companies receive a management fee equal to a percentage usually 2 5 of the capital of each fund they also receive a percentage 15 30 of the profits of each fund called carried interest periodic reports are made by the vc firm to the limited partners usually these are only costs of managing the fund and so revenues are negative most contracts specify the percentage of time that the vc will devote to managing the fund the analysis of this research deals with the incentives of the vc who has limited attention to be allocated between improving current ventures and evaluating new ventures for possible funding the analysis shows that the vc as agent for both the entrepreneur and the general partners does not have the incentives required to maximize their profits the vc allocates attention among ventures and venture funds less frequently than required to maximize the entrepreneurs and limited partners profits however the vc does maximize the total profits of all ventures because the vc considers the opportunity cost of attention the vc s allocation of attention is efficient the implication of this result is that although the entrepreneurs and limited partners could be made better off with a different allocation of the vc s time this would be an inefficient use of the vc s time

the size distribution of innovating firms in the uk 1945 1983 a survey of 4 378 significant innovations shows that firms with fewer than 1 000 employees commercialized a much larger share than is indicated by their share of r and d expenditures innovations per employee have been consistently above average in firms with more than 10 000 employees and have become so in firms with fewer than 1 000 intersectoral variation in the size distribution of innovating firms can be explained as a function of r and d based technological opportunities and of technological ease of entry by user firms with principal activities outside the sector copyright 1987 by blackwell publishing ltd

kerala s industrial backwardness a case of path dependence in industrialization summary the indian state of kerala presents a paradox of development with its remarkable social achievements and relative industrial backwardness this paper describes kerala s industrial backwardness as due to a path dependent process of industrialization a policy decision in the 1930s marked by a priority for investments in chemical based industries and the identification of hydroelectricity as a potential basis for industrialization continue to have implications for industrial growth in kerala today with the policy decision in the 1930s industrial structure in kerala came to be locked into a pattern that offered very little potential for interindustry interlinkages and industrial growth

rotten kids purity and perfection bergstrom has shown that becker s rotten kid theorem holds in a world of two commodities if their utilities are transferable the present paper identifies a further circumstance in which the theorem is valid we show that it also holds in the absence of transferable utility if the externalities are assumed to take the form of a single pure public good

unsystematic security price movements management earnings forecasts and revisions in consensus analyst earnings forecasts empirical evidence suggests that information about a firm s future earnings prospects is important to investors griffin 1976 givoly and lakonishok 1979 1980 and imhoff and lobo 1984 reported statistically significant abnormal stock returns before at and after announcements of analyst earnings forecast revisions in addition imhoff and lobo documented positive correlation between the magnitudes of the forecast revisions and the abnormal returns these findings are consistent with the hypothesis that investors find analyst forecast revisions informative another source of information about future earnings is projections from corporate officials several studies have found unsystematic stock price changes prior to and or immediately surrounding the public release of management earnings forecasts e g foster 1973 nichols and tsay 1979 patell 1976 jaggi 1978 penman 1980 and waymire 1984 the conclusion from this research is that management forecasts also convey information to investors

path dependence research in regional economic development cacophony or knowledge accumulation henning m stam e and wenting r path dependence research in regional economic development cacophony or knowledge accumulation regional studies the concept of path dependence has gained momentum in the social sciences particularly in economic geography this paper explores the empirical literature on path dependence and path creation in regional economic development it offers a critical reflection on these studies and outlines commonalities and problems in research designs and empirical testing the review suggests that the popularity of the path dependence concept in regional studies has led to a cacophony of studies rather than to a purposeful accumulation of knowledge around the concept gaps are identified and guidelines are suggested for future research on path creation and path dependence in regional development henning m stam e and wenting r

the diminishing signaling value of patents between early rounds of venture capital financing a long stream of research has documented the positive effects that patents bring about to emerging firms in high technology industries the general consensus is that patents contribute to firm growth because they confer monopolistic market rights offer protection from competitors increase the negotiating position of patent holders and other benefits what has received relatively less attention in the literature is whether patents act as a signal that attracts investors such as venture capital firms the handful of studies that have addressed that question has not analyzed whether the signaling function of patents decreases after the initial attraction of venture capital as information asymmetries between investors and target firms reduce in this study we hypothesize that patent activity has a signaling value that diminishes once information asymmetries between investors and funded firms lessen to study our proposition we draw upon a longitudinal dataset of more than 580 u s based biotechnology firms to empirically demonstrate that biotechnology firms that have submitted patent applications substantially increase the level of funding they receive for their first round of financing in line with a reduction of information asymmetries once the initial investment has materialized patent applications and granted patents have no effect on the growth of venture capital funds raised during the second round of financing we conclude the study with a discussion of avenues for new research implications for policy makers that consider the usefulness of the current patent system and with insights that can be employed by managers of firms in knowledge intensive areas such as biotechnology

founder s human capital external investment and the survival of new high technology ventures the effect of founder characteristics in attracting external investment and enhancing survival of new high technology ventures is explored using human capital theory and signalling theory we test the effect of founder characteristics on external investment in and survival of new high technology ventures by tracking a random sample of 193 high technology start ups all participants in the israeli technology incubator program founder s business management expertise and academic status attracted external investment but founder s general technological expertise did not founder s business management expertise and general technological expertise positively affected venture survival but founder s academic status did not possible implications for entrepreneurs investors policy and further research are discussed

finance for smes a u k perspective this paper provide an overview of recent trends in the financing of smaller businesses in the u k it refers in particular to the findings of a major recent programme of work in this area funded by the economic and social research council in which the author participated this programme included the first national survey to address these issues since the bolton report of 1971 as well as a range of projects covering the finance of ethnic businesses and hi tech firms as well as the market for informal venture capital on the basis of this work and of the results of more recent follow up surveyors it is concluded that the evidence for general equity or debt gaps in the u k is weak if anything sme funding was too easy in the boom of the late 1980s it is argued that consideration could be given to the promotion through seedcorn funding of sme co operative or mutual guarantee schemes to reduce information asymmetry in u k credit markets

getting more organs for transplantation the united states and most other nations suffer from a shortage of human organs for transplant in the united states over 120 000 people are on waiting lists for organ transplant and every year over 10 000 people die while waiting organ procurement and transplantation network there are a number of fronts on which research has made progress to address this shortage but there is still significant work to be done we describe how organs are acquired and allocated strategies that have been implemented to increase the number or organ donations for transplantation from living donors and work we are conducting to understand how we can recover more organs from deceased donors for example how organs are allocated can moderate their scarcity not just through efficiencies in allocation but also through changes in donor behavior we will describe a market design being explored in israel to increase organ donor registration by providing priority on organ waiting lists for individuals who previously registered as organ donors we will also report results that raise concern over policies that have recently been implemented in the united kingdom and several us states namely changing the way the organ registration question is asked to a mandated choice frame organs for transplant can be recovered from living donors and deceased donors living donors give an organ while alive living donation of kidneys which represented 96 per cent of all us living organ donations in 2012 optn is possible since humans have two kidneys but can live a healthy life with only one allowing the other to be removed and donated

the joint effect of management s prior forecast accuracy and the form of its financial forecasts on investor judgment in this paper we examine how investor reaction to management earnings forecasts is a joint function of the form of the forecast point or range forecasts and management s prior forecast accuracy high or low drawing on ajinkya and gift s 1984 expectations adjustment hypothesis king pownall and waymire 1990 argue that the value relevance of forecasts is a function of their timing credibility and form we extend the king pownall and waymire framework by hypothesizing that forecast form and one aspect of management credibility namely prior forecast accuracy will interact in their effects on investor judgment

why has the investment performance of technology specialist european venture capital funds been so poor abstract this paper seeks to identify and model the key parameters which impact on the commercial performance of a specialist technology focused early stage venture capital fund using both input costs and output expected values data provided by a number of specialist independent venture capital firms a spreadsheet model of a 10 year term fund is developed these figures are used to generate internal rate of return irr and net present value npv performance calculations for the investment commitments of both the institutional limited partners and venture capitalist general partner the generically defined model allows the user to address both conceptual and pragmatic questions regarding the relationship between fund structure and performance the model is further developed to determine the effect on fund performance of two venture capital related indirect state support schemes guarantee and leverage options iterative interrogations of the model demonstrate the sensitivity of economic returns to the scale of the investment activity state supported schemes mitigate but do not remove the negative performance consequences of small fund size a fund with under 15 million us 25 million or ecu21 million under management is of increasing economic vulnerability

venture capital internationalization synthesis and future research directions research on venture capital internationalization vc has expanded rapidly over the last decade this paper reviews the extant literature on vc internationalization and highlights gaps in our knowledge we identify three major research streams within this literature which revolve around the following questions 1 which vc firms invest across borders and what countries do they target with a macro economic or a micro economic focus 2 how do vc firms address the liabilities of non domestic investing and 3 what are the real effects of international vc investments we provide an overview of the contributions in these research streams discuss the role of public policy and suggest avenues for future research specifically we call for a deeper understanding of 1 the functioning and impact of vc firms modes of internationalization 2 micro level processes such as the functioning and decision making of international investment committees the interaction between headquarters and local offices or the development of international human and social capital 3 the role of country institutions in vc internationalization and its real effects and 4 the interplay of international vc with alternative financing sources

assessing the contribution to innovation of private equity investors a study on european buyouts abstract 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

determinants of required return in venture capital investments a five country study abstract using two complementary theoretical perspectives we develop hypotheses regarding the determinants of the return required by venture capitalists and test them on a sample of over 200 venture capital companies vccs located in five countries consistent with resource based theory we find that early stage specialists require a significantly higher return than other vccs when investing in later stage ventures consistent with financial theory we find that acquisition buyout specialists require a significantly lower return than other vccs when investing in expansion companies furthermore in comparison to specialists highly stage diversified vccs require a significantly higher return for early stage investments independent vccs require a higher rate of return than captive or public vccs in general higher required returns are associated with vccs who provide more intensity of involvement have shorter expected holding period of the investment and being located in the us or uk in comparison to those in france belgium and the netherlands

do spinoff dynamics or agglomeration externalities drive industry clustering a reappraisal of steven klepper s work steven klepper s theory of industry clustering based on organizational reproduction and inheritance through spinoffs challenged the marshallian view on industry clustering this article provides an assessment of klepper s theoretical and empirical work on industry clustering we explore how new his spinoff theory on industry clustering was and we investigate the impact of klepper s theory on the economic geography community klepper s work has inspired especially recent literature on regional branching that argues that new industries grow out of and recombine capabilities from local related industries finally the article discusses what questions on industry location are still left open or in need of more evidence in the context of klepper s theory less

no news is bad news sensegiving activities media attention and venture capital funding of new technology organizations a significant body of research has examined how new organizations gain legitimacy and how gaining it affects their subsequent access to resources less attention has been given to the problem of how new organizations attract collective attention although related to legitimation the problem of attracting attention is distinct as attention and evaluation are distinct cognitive processes in this study we examine the allocation of collective attention to new organizations in a system of relationships within which new organizations seek to attract attention through their sensegiving activities the information properties of their sensegiving activities affect the level of attention they receive from different types of media and media attention in turn increases their perceived value potential in the eyes of venture capital investors vcs we examine these relationships in a sample of 398 information technology start ups that have obtained different levels of venture capital funding our results show that new organizations that engage in more intense and diverse sensegiving activities attract higher levels of industry media attention and that these effects are enhanced by the human capital of their founders and leaders diverse sensegiving activities are also associated with higher levels of attention from the general media but only the attention of specialized industry media is positively associated with the level of vc funding obtained these findings extend current research on information intermediation and institutional legitimation by demonstrating that media attention early in the life of new organizations affects how they are valued by a well informed expert audience such as vcs they also contribute to entrepreneurship research on the effects of new organizations strategies on their ability to secure resources and to research on vc funding decisions

innovation networks and vertical integration abstract a central debate in industrial policy today is that between proponents of large vertically integrated firms on the one hand and those of networks of small specialized producers on the other this paper argues that neither institutional structure is the panacea its supporters claim the menu of institutional alternatives is in fact quite large and both firms and networks of which there are several kinds can be successful growth promoting adaptations to the competitive environment industrial structures vary in their ability to coordinate information flows necessary for innovation and to overcome power relationships adverse to innovation the relative desirability of the various structures then depends on the nature and scope of technological change in the industry and on the effects of various product life cycle patterns the principal policy conclusion of this analysis is that the government s role ought to be facilitating rather than narrow and prescriptive allowing scope for firms to develop organizational forms that are best adapted to their particular environments

efficiency of venture capital firms evidence from spain in recent years the venture capital vc sector has played an increasingly important role in financial systems in general this type of specialised financial activity is conducted by two types of operators vc firms and vc management companies each with its specific characteristics the main objective of this paper is to evaluate the operating efficiency of these financial intermediaries in spain using data envelopment analysis and to carry out an exploratory study of the variables that affect their level of efficiency using a truncated regression model and taking into consideration the nature of the operator an approach not previously undertaken our analysis reveals first differences in the levels of efficiency achieved by vc firms and vc management companies and second that the most efficient organisations are those with more diversified ownership structures and which have a portfolio of companies active in the most innovative sectors

escalation of commitment in venture capital decision making differentiating between domestic and international investors drawing upon an escalation of commitment framework this study investigates how differences between cross border and domestic venture capital investors in emotional social and institutional factors affect their decision to terminate an unsuccessful investment we track the exit outcome of 1060 venture capital investments in 684 european technology companies results show that domestic investors have a high tendency to escalate their commitment to a failing course of action while cross border investors terminate their investments efficiently even when investing through a local branch this is explained by cross border investors having a lower social and emotional involvement with the project and a lower embeddedness in the local economic and social environment decreasing individual decision biases further they are affected to a lower extent by normative pressures to further invest from their co investment network local branches of cross border investors are also shielded from escalation of commitment we conjecture that their international investment committee acts as an organizational safeguard against individual decision biases domestic investors may hence benefit from mimicking the behavior of cross border investors

when do market games have transferable utility a pure exchange economy generates a market game in which the allocations achievable by any coalition are determined by the initial endowments of its members subject to certain regularity conditions it is shown that for a market game it is possible to find utility representations for each consumer so that the game can be treated as a game with transferable utility if and only if indirect utility of all consumers can be represented in the gorman polar form this is the class for which aggregate demand behaves as if it were the demand of a single consumer journal of economic literature classification numbers 021 022 cc 1985 academic press inc

impact of post restatement actions taken by a firm on non professional investors credibility perceptions the frequency of earnings restatements has been increasing over the last decade restating previous earnings erodes perceived trustworthiness and competence of management giving firms strong incentives to take actions to enhance perceived credibility of future financial reports farber d b 2005 the accounting review 80 2 539 561 using an experimental case we examine the ability of post restatement actions taken by a firm to positively influence non professional investors perceptions of management s financial reporting credibility our examination considers credibility judgments following two types of restatements those resulting from fraud in which the character ethics and values of an organization may be called into question cf copeland jr j e 2005 accounting horizons19 1 35 43 and those resulting from non fraud i e aggressive accounting

striking a balance between rules and principles based approaches for effective governance a risks based approach several recent studies and initiatives have emphasized the importance of a strong ethical organizational dna odna to create and promote an effective corporate governance culture of trust integrity and intellectual honesty this paper highlights the drawbacks of an excessively heavy reliance on rules based approaches that increase the cost of doing business overshadow essential elements of good corporate governance create a culture of dependency and can result in legal absolutism the paper makes the case that the way forward for effective corporate governance is to strike an optimal balance between rules based and principles based approaches the recent corporate scandals have demonstrated that the ethical odna is critical to the driving force and basis of legal and regulatory requirements effective governance means adhering to ethical principles not merely complying with rules and is a crucial guardian of a firm s reputation and integrity it is through an effective corporate governance program that is one that optimally captures and integrates the appropriate aspects of rules based and principles based approaches and identifies and assesses the related risks that an organization can reconfigure its odna for improved performance focusing on the ethical odna as the basis of new governance measures provides an opportunity to develop a competitive advantage as it represents a potential source of differentiation strengthens the relationship with all stakeholders of the organization by building a culture of trust and integrity and re instills investor confidence this paper employs dialectical reasoning that links the odna through principles driven rules in developing a risks based approach a comparison from a risk assessment perspective between rules based and principles based approaches is presented although there have been few applications employing dialectical reasoning in business research this methodology can be extremely useful in isolating ethical issues and integrating them into the business process the risks based approach captures the benefits of both rules based and principles based approaches and incorporates trust based principles such as solidarity subsidiarity and covenantal relationships

the informal venture capital market aspects of scale and market efficiency abstract risk capital is a resource essential to the formation and growth of entrepreneurial ventures in a society that is increasingly dependent upon innovation and entrepreneurship for its economic vitality the performance of the venture capital markets is a matter of fundamental concern to entrepreneurs venture investors and to public officials this article deals with the informal venture capital market the market in which entrepreneurs raise equity type financing from private investors business angels the informal venture capital market is virtually invisible and often misunderstood it is composed of a diverse and diffuse population of individuals of means many of whom have created their own successful ventures there are no directories of individual venture investors and no public records of their investment transactions consequently the informal venture capital market poses many unanswered questions the author discusses two aspects of the informal venture capital market questions of scale and market efficiency the discussion draws upon existing research to extract and synthesize data that provide a reasonable basis for inferences about scale and efficiency private venture investors tend to be self made individuals with substantial business and financial experience and with a net worth of 1 million or more the author estimates that the number of private venture investors in the united states is at least 250 000 of whom about 100 000 are active in any given year by providing seed capital for ventures that subsequently raise funds from professional venture investors or in the public equity markets and equity financing for privately held firms that are growing faster than internal cash flow can support private investors fill gaps in the institutional equity markets the author estimates that private investors manage a portfolio of venture investments aggregating in the neighborhood of 50 billion about twice the capital managed by professional venture investors by participating in smaller transactions private investors finance over five times as many entrepreneurs as professional venture investors 20 000 or more firms per year compared to two or three thousand the typical angel backed venture raises about 250 000 from three or more private investors despite the apparent scale of the informal venture capital market the author cites evidence that the market is relatively inefficient it is a market characterized by limited information about investors and investment opportunities furthermore many entrepreneurs and private investors are unfamiliar with the techniques of successful venture financing the author s scale and efficiency inferences coupled with evidence documenting gaps between private and social returns from innovation prompt questions about public as well as private initiatives to enhance the efficiency of the informal venture capital market the article concludes with a discussion of venture capital network inc vcn an experimental effort to enhance the efficiency of the informal venture capital market vcn s procedures and performance are described followed by a discussion of the lessons learned during the first two years of the experiment

robust financial contracting and the role of venture capitalists we derive a role for inside investors such as venture capitalists in resolving various agency problems that arise in a multistage financial contracting problem absent an inside investor the choice of securities is unlikely to reveal all private information and overinvestment may occur an inside investor however always makes optimal investment decisions if and only if he holds a fixed fraction contract where he always receives a fixed fraction of the project s payoff and finances that same fraction of future investments this contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds in this article we develop a model of financial contracting with multiple investment decisions and show how conflicts of interest and informational asymmetries can be effectively resolved by an inside investor i e an investor who not only provides capital but also works closely with the firm monitors it frequently and is generally very well informed about the firm s prospects and investment opportunities venture capitalists are obvious examples of inside investors and their function has been an important motivation for this article banks especially in japan and germany are also involved in monitoring and can be viewed as playing the role of inside investors in this article we examine the potential benefits of inside investors in a context where there are no restrictions beyond limited liability on the type of financial contracts that can be written we address a basic financial contracting problem involving an entrepreneur who has an idea for a project but does not have sufficient capital to fund it an important assumption is that there are several stages in the project s development and that a decision must be made at each stage whether the project should be continued or abandoned if the project is continued the amount of additional capital to be invested must also be determined we assume that the entrepreneur as an insider observes private information about the project s profitability at each stage this information is not

the influence of dispositional affect and cognition on venture investment portfolio concentration abstract we explore how an investor s dispositional affect and cognitive style influence venture investment portfolio concentration based on a field study using a sample of 128 judges from a business plan competition we find that high positive affectivity investors construct more concentrated investment portfolios than their low positive affectivity counterparts whereas high negative affectivity investors construct more diversified investment portfolios than their low negative affectivity counterparts further investors who rely on analytical decision making display a weaker relationship between negative affectivity and investment diversification whereas investors who rely on emotion based decision making display a stronger relationship between positive affectivity and investment concentration

staging of venture capital investment a real options analysis this paper uses contingent claims analysis to investigate the staging decision of venture capitalist vc in a principal agent framework venture capital investment opportunities are modeled as real options with multiple volatilities and the entrepreneur s incentive is assumed to maximize the probability of getting funded in the next financing round two celebrated formulae in the option pricing literature are generalized to evaluate these real options we find that staging not only gives the vc a waiting option but also mitigates the agency problem of the entrepreneur undertaking too conservative activities moreover we find that the vc tends to stage her investment when the expected growth rate of the venture s market value is lower however the risk free interest rate is not an important factor in the staging decision our model also provides a good explanation for existing empirical evidence on the staging of venture capital investment

spatial collocation and venture capital in the us biotechnology industry biotechnology firms operate in a high risk and high reward environment and are in a constant race to secure venture capital vc funds previous contributions to the literature show that the vc firms tend to invest locally in order to monitor their investments and to provide operating assistance to their target firms further biotechnology is a knowledge based industry that tends to exhibit spatial clusters and the firms in such industries may collocate to benefit from gaining access to local markets for specialized inputs e g skilled researchers and from local knowledge spillovers and network externalities if such gains exist we expect that the collocated firms should exhibit positively correlated performance including in their ability to attract venture capital funds the purpose of this paper is to empirically measure the strength and spatial extent of the relationships among the amount of funds raised by proximate biotechnology firms we model these relationships with a spatial autoregression sar model and we control for characteristics of the biotechnology firms and the vc firms that provide their funds as well as site specific factors based on our fitted sar model we find that the amount of venture capital raised by a particular biotechnology firm is significantly influenced by the number of vc firms and the vc funding levels raised by biotechnology firms located within a 10 mile radius but these relationships are not statistically significant beyond this range

turning water into wine exploring the role of dynamic capabilities in early stage capitalization processes technology based ventures face considerable challenges when attempting to raise early stage capital during the early stages of development to create an operational business they need access to financial capital but external investors prefer to see an operational business before investing capital this study extends arguments grounded in dynamic managerial capabilities theory to examine the extent to which various trade offs among the quality of a venture s management team radicalness of the firm s technological resources and demand uncertainty in focal markets impact the ability of ventures to resolve these capitalization challenges we find that higher levels of demand uncertainty and more radical innovations do not appear to enhance the impact of strong management teams on the raising of early stage capital however lower levels of uncertainty do appear to strengthen the effects of strong management teams implications of these findings for dynamic capabilities theory and early stage capitalization processes are discussed

route 128 the development of a regional high technology economy abstract a corner of massachusetts not far from boston s route 128 has become a world center of high technology hundreds of enterprises mainly in electronics based industries employ over 250 000 people 75 000 of whom were added between 1975 and 1980 enterprises founded after world war ii have spearheaded growth in the state with a rapid rate of new firm formation continuing through the 1970s this paper examines the state s high tech growth to determine what caused it to happen where it did and assess the special role of new enterprises in promoting it the development is found to have been largely indigenous and spontaneous rather than the result of a concerted effort to attract industry massachusetts distinguished universities and their research laboratories an inherited technological infrastructure the importance of agglomeration externalities and the good fortune of having a home grown firm become the world s leading manufacturer of minicomputers were major contributors to the state s success but the enormous opportunities for new enterprises which the electronics revolution generated and the tendency for such firms to start up mainly as spin offs from other high tech firms or from university laboratories and to remain close to their sources fueled the tendency towards spatial concentration

emerging strategies in the venture capital industry abstract this article reports a study of the future direction of the venture capital industry by examining the basic strategies and strategic assumptions of a broad sample of venture capital firms there are three main sets of results first the once homogeneous venture capital industry is rapidly dividing into several different strategic groups members of these groups are increasingly distinguishing themselves from other groups on four basic dimensions followed by member firms 1 financial resources equity capital comes from a greater variety of sources five major sources resulting in fundamentally different demands on the mission of the receiving venture capital firm 2 staff resources the way venture capital firms use staff resources particularly regarding investee management assistance is becoming increasingly varied across different groups some firms provide fewer than 2 days per year while others provide up to 450 man days per year per client 3 venture stages while the overall industry retains a primary interest in stage 1 2 and 3 investment specific firms vary considerably in the distribution of investment emphasis across these three stages 4 use of financial resources firms in the industry are becoming increasingly differentiated in the size of minimum investments they make 100 m to 1000 m and in their role as a direct investor versus a broker for institutional funds practicing venture capitalists should make use of this first set of findings in two ways first they may find it useful to compare their firm s orientation along these four strategic dimensions with those of the firm s that comprised this study second they may seek to use these four strategic dimensions as a basis on which they might examine clarify and or redefine the marketing strategy pursued by their firm a second set of results identified three goals and priorities of venture capital firms that have neither changed over time nor across increasingly different strategic groups annualized after tax return on investments of between 25 and 40 remain the most common objective across all firms a 5 to 6 year investment time horizon and a major emphasis on the quality of the management team in evaluating new deals were universal priorities across diverse venture capital firms a third finding in this study was that venture capital firms profess greater certainty about the future direction of the venture capital industry than the direction of their firm the most notable example of this is a strong sense that industry wide rates of return are headed downward yet few senior partners expect their firm to experience this decline practicing venture capitalists may be interested to peruse these results to see what trends are predicted within the venture capital industry by this subsample of that industry second they should consider the finding that industry wide rates of return are headed downward in light of the first two sets of findings to develop their own opinion about the future performance of different strategic groups within the industry it is important to note that the sample of venture capital firms on which this study was based did not include most of the larger older funds some of these funds would be characterized as industry leaders pace setters and innovators the sample provides a solid representation of the broad middle of the venture capital industry and newer entrants into the industry while larger older funds are under represented their impact on future trends and strategies in the industry is captured to some extent in the set of questions about future direction of the venture capital industry finally the emerging strategic groups in the venture capital industry that were identified by this study may be useful information for investors as well as users of venture capital for investors the opportunity to participate in venture capital activity should become more clearly understood and varied basically this study should help investors differentiate the strategic posture of different venture capital firms and funds on four factors rather than simply industry geographic considerations for users of venture capital the results of this study suggest a possibility for multiple options that are both more accessible and more catered to specific needs users of venture capital should find a clearer basis on which to differentiate venture capital firms in terms of venture stage priorities staff utilization orientations sources and uses of financial resources this should make for more informed shopping among different venture capital sources and provide a basis on which to shop for the most compatible firm

why do venture capital firms exist theory and canadian evidence executive summary this paper investigates the role of venture capitalists we view their raison d etre as their ability to reduce the cost of informational asymmetries our theoretical framework focuses on two major forms of asymmetric informa tion hidden information leading to adverse selection and hidden ac tion leading to moral hazard our theoretical analysis suggests four em pirical predictions 1 venture capitalists operate in environments where their relative efficiency in selecting and monitoring investments gives them a comparative advantage over other investors this suggests strong industry effects in venture capital investments venture capitalists should be prominent in industries where infor mational concerns are important such as biotechnology computer software etc rather than in rou tine start ups such as restaurants retail outlets etc the latter are risky in that returns show high variance but they are relatively easy to monitor by conventional financial intermediaries 2 within the class of projects where venture capitalists have an advantage they will still prefer projects where monitoring and selection costs are relatively low or where the costs of informational asymmetry are less severe thus within a given industry where venture capitalists would be expected to focus we would also expect venture capitalists to favor firms with some track records over pure start ups

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

a model of venture capitalist investment activity the paper describes the activities of venture capitalists as an orderly process involving five sequential steps these are 1 deal origination the processes by which deals enter into consideration as investment prospects 2 deal screening a delineation of key policy variables which delimit investment prospects to a manageable few for in depth evaluation 3 deal evaluation the assessment of perceived risk and expected return on the basis of a weighting of several characteristics of the prospective venture and the decision whether or not to invest as determined by the relative levels of perceived risk and expected return 4 deal structuring the negotiation of the price of the deal namely the equity relinquished to the investor and the covenants which limit the risk of the investor 5 post investment activities the assistance to the venture in the areas of recruiting key executives strategic planning locating expansion financing and orchestrating a merger acquisition or public offering 41 venture capitalists provided data on a total of 90 deals which had received serious consideration in their firms the questionnaire measured the mechanism of initial contact between venture capitalist and entrepreneur the venture s industry the stage of financing and product development ratings of the venture on 23 characteristics an assessment of the potential return and perceived risk and the decision vis i vis whether to invest the modal venture represented in the database was a start up in the electronics industry with a production capability in place and seeking 1 million median in outside financing there is a high degree of cross referrals between venture capitalists particularly for the purposes of locating co investors factor analysis reduced the 23 characteristics of the deal to five underlying dimensions namely 1 market attractiveness size growth and access to customers 2 product differentiation uniqueness patents technical edge profit margin 3 managerial capabilities skills in marketing management finance and the references of the entrepreneur 4 environmental threat resistance technology life cycle barriers to competitive entry insensitivity to business cycles and down side risk protection 5 cash out potential future opportunities to realize capital gains by merger acquisition or public offering the results of regression analyses showed expected return to be determined by market attractiveness and product differentiation r2 0 22 perceived risk is determined by managerial capabilities and environmental threat resistance r2 0 33 finally a discriminant analysis correctly predicted in 89 4 of the cases whether or not a venture capitalist was willing to commit funds to the deal on the basis of the expected return and perceived risk the reactions of seven venture capitalists who reviewed the model s specification were used to test its validity

the potential of actuarial decision models abstract venture capitalists vcs are considered experts in identifying high potential new ventures gazelles vc backed ventures survive at a much higher rate than those ventures backed by other sources kunkel and hofer 1991 sandberg 1986 timmons 1994 thus the vc decision process has received tremendous attention within the entrepreneurship literature nonetheless vc backed firms still fail at a surprisingly high rate 20 moreover another 20 of the vc s portfolio fails to provide any return to the vc therefore there is room for improvement in the vc investment process the three staged investment process often begins with venture screening first vcs screen the hundreds of proposals they receive to assess which deserve further consideration those ventures that survive the initial stage are then subjected to extensive due diligence finally the vc and entrepreneur negotiate terms of the investment considering the amount of time that due diligence and negotiation of terms may take it is imperative that vcs minimize their efforts during screening so that only those ventures with the most potential proceed to the next stage yet at the same time the screening process should also be careful not to eliminate gazelles prematurely vcs are in a quandary how can they efficiently screen venture proposals without unduly rejecting high potential investments the answer may be to use actuarial decision aides to assist in the screening process actuarial decision aides are models that decompose a decision into component parts or cues and recombine those cues to predict the potential outcome for example an actuarial model about the vc decision might decompose a venture proposal into decisions about the entrepreneurial team the product the market etc the sub component decisions are than recombined to reach an overall assessment of the venture s potential such models have been developed in a number of decision domains e g bank lending psychological evaluations etc and been found to be very robust specifically these models often outperform the very experts that they are meant to mimic the current study had 53 practicing vcs participate in a policy capturing experiment the participants examined 50 ventures and judged each venture s success potential would the venture ultimately succeed or fail likewise identical information about each venture was input into two different types of actuarial models one actuarial model a bootstrap model used information factors that vcs had identified as being most important to making a good investment decision the second actuarial model was derived by roure and keeley 1990 the roure and keeley model best distinguished between success and failure in a study of 36 high technology ventures the bootstrap model outperformed all but one participating vc he achieved the same accuracy rate as the bootstrap model the roure and keely model although less successful than the bootstrap model outperformed over half of the participating vcs the implications of this study are that properly developed actuarial models may be successful screening decision aides the success of the actuarial models may be attributed to their consistency across different proposals and time the models always weight the information cues the same vcs as are all human decision makers may often be biased by differing salient information cues that cause them to misinterpret or ignore other important cues for example a vc may overlook product weaknesses if s he is familiar with the entrepreneur putting forth a particular proposal although the current study developed a generalized actuarial model each vc firm could create screening models that fit it s particular decision criteria the models could then be used by junior associates or lower level employees to perform an initial screen of received venture proposals thereby freeing senior associates time

corporate venture capitalists autonomy obstacles and performance abstract this report presents the results of a formal study of the corporate venture capital community in the united states and is based upon responses to a questionnaire completed by 52 corporate venture capitalists cvcs the central question addressed in this study involves which approach to corporate venture capital is most likely to produce successful results this question was addressed via cluster analysis which segregated the cvc community into two broad classes pilots which are marked by substantial organizational independence and copilots which are highly dependent on corporate management with respect to venture funding and decision authority pilots achieve equal or higher levels of performance and are plagued by far fewer obstacles than their highly dependent counterparts the results suggest the following 1 the corporate venture fund should be established as an independent entity and should have access to a committed separate pool of funds this will enable cvcs to respond aggressively to and manage investment opportunities with minimal corporate interference such an independent entity will defuse justifiable concerns on the part of entrepreneurs related to such interference 2 the fund should be managed by skilled venture professionals who may be drawn from the independent venture community or the small but growing pool of experienced cvcs corporate executives may comprise a part of the management team 3 if the corporate venture fund hopes to attract top quality managers it must be prepared to offer compensation and authority commensurate with their skill level in short corporate venture capitalists should be treated like independent venture capitalists by organizing the fund as an independent entity the political problem associated with establishing compensation levels above those of the corporation can be minimized 4 all cvcs should establish a primary focus on the realization of financial objectives i e return on investment strategic benefit objectives are not necessarily ill advised so long as they do not interfere with sound financial decision making when they do the corporate venture capital process is likely to become less effective for instance a corporate venture fund should only confine itself to investing in a few industries if there are sufficient high grade investment opportunities within those industries to ensure adequate deal flow the venture fund should not be pressured investments that appear exciting from a corporate perspective for technological or marketing reasons but are not financially attractive may well drain resources rather than produce opportunities 5 venture proposals failing on financial criteria might be referred to other parts of the corporation with the purpose of exploring an alternate relationship e g a development contract or joint venture if this is appealing to the corporation a mechanism such as a corporate liaison or reporting system might be established to facilitate the flow of information 6 a corporation should be willing to make a complete commitment of talent and capital if it establishes its own corporate venture fund the corporation should then be willing to accept a limited role if the corporation is unable to accept a limited role with respect to its own fund it may be best for it to participate as an investor in a traditional fund where such limitations will be enforced however this latter approach may significantly dilute or eliminate potential for strategic benefits

the influence of unrelated and related diversification on fraudulent reporting this study suggests that unrelated diversification has a positive influence on the probability of fraudulent reporting whereas related diversification has a negative influence on the probability of fraudulent reporting the strength of the influence of these corporate level strategies is contingent on the moral character of the firm unrelated diversification provides opportunity for financial innovation within the firm s internal capital market which can result in fraudulent reporting this is more likely when the moral character of the firm is driven by a conscienceless financial self interest motive as implied by the firm s contempt toward the larger community in terms of damage inflicted on the interests of people outside the firm in contrast related diversification where product divisions focus on mutual sharing and monitoring of operational activities can reduce the probability of fraudulent reporting this is more likely when constituents within the firm view themselves as moral citizens as implied by the firm s benevolence toward the larger community hence while unrelated diversification focuses the energies of managers within the firm on financial manipulation related diversification focuses these energies on productive purposes

reputation and decision making under ambiguity a study of u s venture capital firms investments in the emerging clean energy sector this study examines the role of reputation on decision making under ambiguity drawing on social cognition and behavioral theories we propose that a firm s reputation exerts dual pressures on its decision making under ambiguity on the one hand a firm s reputation increases its aspirations for future performance and promotes its engagement in risky strategies to achieve them on the other hand preserving the already established reputation requires a firm to deliver consistent performance over time which promotes greater use of risk reduction strategies our analyses of the u s venture capital firms investments in the clean energy sector from 1990 to 2008 demonstrate that while reputable firms are more likely to invest in the emerging sector they also employ risk reduction strategies more extensively the sector s legitimation further influences these firms investment decisions both directly and through its interaction with firm reputation

technology intensity and agglomeration economies abstract this article investigates the relationship between industry technology intensity and the impacts of agglomeration economies on industrial growth many recent studies suggest the actual economic impacts of different forms of agglomeration economies depend on industrial characteristics such as technology intensity but systematic empirical evidence is still lacking to fill this gap we analyze employment data covering all 3 digit naics industries of u s counties the results confirm that technology intensive industries are more likely to benefit from jacobs spillovers as measured by related variety while sectors with low technology intensities can better benefit from mar spillovers as measured by regional specialization

the capital gap for small technology companies public venture capital to the rescue in this paper we analyze effectiveness of public intervention for fostering private venture capital market in spain we use a sample obtained from venturexpert database consisting of 755 investments made by 83 spanish public and private venture capitalists that closed at least one fund between 1997 and 2008 we compare the investments undertaken by private and public investors before and after public venture capital programs were started we found that spanish venture capital market has rapidly developed in the last 10 years and that this development coincides with the establishment of public policies for encouraging technology entrepreneurship we also found that other factors such as previous experience of investors and size have also contributed to fostering more high risk investments these results may encourage governments in other countries to start or keep working to promote private venture capital investments

do uk venture capitalists still have a bias against investment in new technology firms abstract the growing economic and political importance of the new economy throughout 1990s has added greater saliency to both supply and demand sides policy oriented questions about the availability of venture capital as a catalyst for new or high technology based early stage investments this paper analyses the changing attitudes of uk venture capital firms to investment in technology enterprises a 1999 survey of 60 uk venture capital firms was structured to be directly comparable to a 1991 study the main findings demonstrate the increasing importance of technology investments to vc firms particularly generalists accordingly the adoption of collaborative strategies to access intellectual capital and complimentary resources via inter firm networks is particularly important the authors conclude that despite material improvements a bias is likely to remain against vc firms involvement in the earliest seed and start up stages of the technology investment cycle

singapore venture capitalists vcs investment evaluation criteria a reexamination the venture capital vc industry in singapore is of recent origin however funds under management in singapore have grown from s 45 million in 1983 to s 7 86 billion in 1996 these developments together with the recent announcement of government s vision of singapore becoming a hub for venture capital in the region provide an opportunity for an examination of the venture capital industry in singapore the vc industry originated in the western hemisphere in response to the need for risk capital for high technology industries in the light of the differences in investment opportunities around singapore and the nature of industrial developments in south east asia in general the authors anticipated that the investment criteria employed by venture capital firms vcs in singapore would differ the results however reveal that criteria adopted by singapore vcs are not very different from those adopted by vcs in other countries including u s the results also confirm that the entrepreneur s characteristics or the top management s capabilities are seen as being primary indicators of the venture s potential further examination of vcs investment process revealed that the investment criteria adopted by successful vcs were no different from those adopted by less successful vcs this confirms that investment selection is a multi stage process wherein venture assessment is only one of the steps in this process before vcs evaluate a venture they screen investment proposals based on their investment preferences or investment strategies vcs in our sample had definite ideas about where to invest and in what types of firms how do vcs select appropriate investment strategies however has not been adequately dealt in the literature and is a fitting subject for further studies

theorizing path dependence a review of positive feedback mechanisms in technology markets regional clusters and organizations the concept of path dependence has often been criticized as vague and only narrowly applicable although we can find some very refined definitions of the concept we also find a wide range of empirical phenomena being described as path dependent we argue that more detailed accounts of the positive feedback mechanisms that form paths can take path dependence beyond this state of being overdetermined but under specified reviewing three well described cases of path dependent dynamics in technology markets regional clustering and organizations we define a core set of positive feedback mechanisms that constitute path dependence at different analysis levels and clarify the relationship between positive feedback and increasing returns we show that path dependent processes that is processes driven by positive feedback that veer toward rigidity or lock in can be but do not have to be found under many labels including structural inertia coevolution or institutional persistence we conclude that a precise definition of path dependence does not need to be at odds with the concept s widespread use in understanding organizational and industrial development processes copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

determinants of venture capital firms preferences regarding the industry diversity and geographic scope of their investments abstract competition is intensifying in the venture capital industry in the u s the number of venture capital firms vcfs tripled from 1980 to 1989 supplier power in the form of institutional investors such as pension funds continues to grow foreign venture capital has grown to the extent that commitments to foreign vcfs exceeded domestic commitments in both 1988 and 1989 further alternative sources of financing for entrepreneurs such as individual investors angels corporations and strategic alliances are increasingly viable options vcfs face pressure to seek lower risk investments improve rates of return and provide value to new venture development surprisingly few scholarly studies have begun to investigate the strategies vcfs are aiming to implement in order to deal with this increasing pressure building on the premise that decisions regarding product market scope are a key component of firm strategy hofer and schendel 1978 this study examined 169 domestic vcfs in order to identify factors that might explain variations in preferences regarding the industry diversity and geographic scope of their investments the sample drawn from california massachusetts and texas represented about 27 of all u s based vcfs in 1987 the year in which the data were gathered in terms of the total size of investment portfolio the average for these 169 vcfs was 69 8 million which is statistically indistinguishable from the u s average of 65 million results indicate that 1 vcfs specializing in early stage ventures prefer less industry diversity and narrower geographic scope relative to other vcfs 2 corporate vcfs i e those owned by non financial corporations prefer less industry diversity but broader geographic scope relative to non corporate vcfs 3 larger vcfs prefer greater industry diversity and broader geographic scope than do smaller vcfs and 4 provision of small business investment companies sbic financing by the vcf has no impact on preferences regarding industry diversity but is associated with a preference for narrower geographic scope one implication of these results is that vcfs in the u s are not homogeneous as regards the intended product market scope of their portfolios this in turn holds implications not only for vcfs but also for their suppliers limited partners buyers entrepreneurs and policy makers vcfs can no longer rely on haphazard investment schemes they need to attract investors by virtue of the benefits offered by their portfolio strategy and they need to attract superior investments via offering valueadded services and know how potential investors in venture capital will want to examine for example the impact on risk and return of investing smaller amounts in several vcfs at one extreme versus making one large investment in a very diversified vcf at the other extreme the results of this and other studies suggest that outcomes timing magnitude and riskiness of returns of choosing such alternatives will vary widely and will depend in great part on the strategies of the vcfs involved it will not be possible for investors to make wise choices without a full examination of their own objectives and of the profiles of vcfs entrepreneurs with the most attractive ventures have alternative sources of financing to consider and should weigh the benefits of being financed and supported by various vcfs as part of the vcfs portfolios knowing a vcf s preferences regarding product market scope improves their chances of approaching and selecting the right fit and for those entrepreneurs with a narrower set of options such knowledge may make the difference between receiving and not receiving financing in a timely manner finally policy makers may be able to make use of knowledge of the forces that influence the investment strategies of vcfs presently concerns for policy makers may include the gap in seed capital increased foreign presence in the u s market and the export of promising innovative technology via alliances with foreign firms all of these factors are influenced by the strategies pursued by vcfs as they jockey for position in the increasingly competitive venture capital market

a naturalistic approach to the theory of the firm the role of cooperation and cultural evolution one reason why firms exist this paper argues is because they are suitable organizations within which cooperative production systems based on human social predispositions can evolve in addition we show how an entrepreneur given these predispositions can shape human behavior within a firm to illustrate these processes we will present a model that depicts how the biased transmission of cultural contents via social learning processes within the firm influence employees behavior and the performance of the firm these biases can be traced back to evolved social predispositions humans lived in tribal scale social systems based on significant amounts of intra and even intergroup cooperation for tens if not a few hundred thousand years before the first complex societies arose firms rest upon the social psychology originally evolved for tribal life we also relate our conclusions to empirical evidence on the performance and size of different kinds of organizations modern organizations have functions rather different from ancient tribes leading to friction between our social predispositions and organization goals firms that manage to reduce this friction will tend to function better

independence of allocative efficiency from distribution in the theory of public goods when is the pareto optimal amount of public goods independent of income distribution subject to some regularity conditions the answer is when preferences of every individual i can be represented by a utility function of the form u x i y a y x i b i y where x i is i s consumption of private goods and y is the amount of public goods

institutional lending to knowledge based businesses abstract knowledge based businesses kbbs are vital to economic development and revitalization in many regions especially in areas that have experienced a decline in traditional industries while much attention has been devoted to various aspects of traditional small firm financing there is a paucity of empirical research to explain how new knowledge based firms are externally financed the current study researches institutional strategies structures and risk assessment practices of chartered banks and government agencies in a peripheral region of canada it examines the extent to which these institutions have modified traditional lending approaches and practices to meet the needs of knowledge based firms the study explores the existence of institutional lending cultures through an empirical investigation of risk assessment practices employed by account managers two business proposals one for a knowledge based firm and one for a more traditional firm were presented to account managers in chartered banks and government agencies for initial review and subsequent due diligence and risk assessment verbal protocols and interview data obtained at three stages of the due diligence process were analyzed using standard multivariate techniques and consensus analysis ca ca a tool developed to measure cultural agreement in cognitive anthropology was employed to assess the level of agreement among lenders with respect to risk assessment overall the study findings confirm that specialized strategies structures and processes for lending to kbbs are only partially developed are still evolving and are considerably diverse in both the banking and government sectors furthermore the level of agreement among lenders develops during the course of the due diligence process results confirm consensus and the existence of a lending culture sensitive to the needs of kbbs among a select but important subgroup knowledge based lending specialists the paper discusses the implications of these findings for researchers entrepreneurs in search of capital and policy makers seeking to develop new business opportunities for regional economic development

changing sources of competitive advantage cognition and path dependence in the finnish retail industry 1945 1995 in this study we analyze the finnish retail industry in 1945 1995 triangulating the major developments in society technology and firm level strategic choices we identified extensive variation in the sources of competitive advantage over time we found that the structural and cognitive cultural dimensions of firms that offered opportunities for success in some specific historical situations turned to be disadvantageous in other situations we propose a research framework that parcels managerial cognition into the elements of structure ideology and systemic and technical properties of the firm especially the notion of ideology is novel in the context of path dependence and cognition copyright 2006 oxford university press

venture capital and high technology entrepreneurship abstract venture capital clearly plays an important role in high technology entrepreneurship the purpose of this article is to explain the differences among various venture capital complexes focusing on where venture capital is important to innovation and entrepreneurship and conversely where it is not we do so through an empirical and historical examination of the seven most important venture capital complexes california san francisco silicon valley massachusetts boston new york illinois chicago texas connecticut and minnesota minneapolis we establish a three part tripartite typology for explaining the differences between these venture capital complexes 1 technology oriented complexes are located close to concentrations of high technology intensive businesses invest most of their funds locally and are net attractors of capital 2 finance oriented complexes are located around financial institutions and export their capital and 3 hybrid complexes mix characteristics of both technology and finance oriented venturing our findings have a series of important practical implications although venture capital is not absolutely necessary to facilitate high technology entepreneurship well developed venture capital networks provide tremendous incentives for entrepreneurship by lowering the difficulties of entering an industry venture capitalists use both their experience and their contacts to reduce many of the information and opportunity costs associated with new business formation the importance of contact networks and information to both deal flow and investment monitoring goes a low way toward explaining why venture capitalists cluster tightly together the availability of venture capital also attracts entrepreneurs and high quality personnel to a region creating a virtuous circle of new enterprise formation innovation and economic development private nonprofit and subsidized public efforts aimed at providing venture capital and stimulating high technology entrepreneurship must confront the fact that venture capital alone will not magically generate entrepreneurship and economic development it is important that such efforts recognize the nonfinancial side of venture investing and attract experienced personnel who can tap into established entrepreneurial networks and secure coinvestors more significantly establishing public venture funding in an area lacking the requisite entrepreneurial climate or technology infrastructure may create a catch 22 situation where locally oriented funds invest in bad deals or where venture capital is simply exported to established high technology regions

networks and innovation in a modular system lessons from the microcomputer and stereo component industries in this paper we examine theoretically and through case studies the phenomenon of the modular system which we distinguish from a product conceived of as a prepackaged entity or appliance we argue that such systems offer benefits on both the demand side and the supply side supply side benefits include the potential for autonomous innovation which is driven by the division of labor and provides the opportunity for rapid trial and error learning demand side benefits include the ability to fine tune the product to consumer needs and therefore blanket the product space more completely both of our case studies suggest that innovation in a modular system can lead to vertical and horizontal disintegration as firms can often best appropriate the rents of innovation by opening their technology to an outside network of competing and cooperating firms we conclude by speculating on the increased importance of modular systems in the future since flexible manufacturing and rising incomes are likely to increase the driving requisites of modular systems low economies of scale in assembly and sophisticated consumer tastes

how venture capital firms differ abstract four potential sources of differences between venture capital vc firms were examined venture stage of interest amount of assistance provided by the vc vc firm size and geographic region where located through a questionnaire 149 venture capitalists provided data about their firms about what they look for in evaluating an investment and about how they work with a portfolio company following an investment firms were divided into four groups based on venture stage of interest the earlier the investment stage the greater the interest in potential investments built upon proprietary products product uniqueness and high growth markets late stage investors were more interested in demonstrated market acceptance there were no differences by stage regarding the desired qualities of management however after the investment was made earlier stage investors attached more importance to spending their time evaluating and recruiting managers earlier stage investors sought ventures with higher potential returns a 42 hurdle rate of return for the earliest stage investor versus 33 for the late stage investor late stage investors spent more time evaluating a potential investment however after the investment was made there was little difference in the amount of time spent assisting the portfolio company there were however differences in the significance that vcs attached to particular post investment activities firms were split into three groups based upon the amount of time the vc spent with a portfolio company after an investment was made as lead investor the most active group averaged over 35 hours per month per investment and the least active group averaged less than seven hours the difference in assistance provided was not strongly tied to differences in investment stage of interest there were major differences in the importance the vcs attached to their post investment activities not surprisingly high involvement vcs viewed their activities as more important based upon the amount of capital they managed firms were also split into three groups average fund size varied from 278 to 12 million dollars the larger firms had more professionals and managed more money per professional the large firms provided the least and the medium sized firms the most assistance to portfolio companies large firms also made larger individual investments even though they invested over half their funds in late stage investments whereas smaller firms focused on the earlier stages the large firms were still a major source of early stage financing there were no differences between geographic regions in the proportion of investments where the venture capital firm served as lead investor there were however major regional differences in investment stages of interest also differences were observed between regions that were not a result of differing size and investment stage

towards an economic theory of the multiproduct firm this paper outlines a theory of the multiproduct firm important building blocks include excess capacity and its creation market imperfections and the peculiarities of organizational knowledge including its fungible and taut character a framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high transactions costs associated with using various markets to trade the services of various specialized assets neoclassical explanations of the multiproduct firm are shown to be seriously deficient

diversification ricardian rents and tobin s q according to prevailing theory firms diversify in response to excess capacity of factors that are subject to market failure by probing into the heterogeneity of these factors we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents an empirical test with tobin s q as the measure of rents is consistent with this theory

when are nash equilibria independent of the distribution of agents characteristics author s bergstrom ted varian hal r abstract we present examples of nash equilibria that do not vary with the distribution of a parameter across agents and then offer a general theorem that characterizes this independence

technology entrepreneurship and path dependence industrial clustering in silicon valley and route 128 silicon valley and route 128 have been the centers of innovation and commercialization for the electronics computer and data communications industries in the postwar period however since the 1960s silicon valley has grown more rapidly and from approximately 1985 through 1995 route 128 experienced retarded growth their success had diverged dramatically in the last decade the most common explanations for this divergence are differing cultures interfirm relations or and internal organizational style organization this paper builds upon path dependent and dominant design explanations of technical and industrial change arguing that the technological trajectories of the industries underlying the two regions were different and this led to their differential destinies to explain the dynamics of the two regions and analytical separation is made between the economy of the existing firms and a separate economy of institutions that evolved to nurture new firm formation copyright 1999 by oxford university press

a non cournot model of voluntary collective action the interaction of selfish rational actors in the provision of a public good is analyzed in an attempt to explain recent experimental findings as well as real world cases of voluntary collective action the model which allows for more sophisticated behavior than that assumed by the conventional cournot theory predicts a higher level of collective action that that theory the impacts of income effects and of the price elasticity of demand for the public good are given special emphasis

optimal production of transplant care services most organ transplants are from dead donors national transplant organizations exhibit considerable differences in terms of their donor population rates spain s organization is by far the most efficient in this respect we argue that much of the productivity advantage of spain s transplant organization proceeds from an efficient organization of the production chain from organ procurement to transplantation transplants from dead donors are analogous to a common resource for the transplant community their circulation through the national transplant organization creates public good externalities between the care units in charge of organ retrieval and those in charge of transplantation a socially efficient production of transplant care services obtains through an optimal control by the national transplant agency of both the circulation and the production of transplants in particular transplant shortage makes the rotten kid theorem fail in this context the analysis also produces a natural measure of public good externalities evaluated from the standpoint of care units

the importance of equity finance for r d activity this article analyzes the importance of equity finance for the r d activity of small and medium sized enterprises we use information on almost 6 000 german smes from a company survey using the intensity of banking competition at the district level as an instrument to control for endogeneity we find that a higher equity ratio is conducive to a higher r d intensity owners may only start r d activities if they have the financial resources to sustain them until successful completion we find a larger influence of the equity ratio for young companies equity may be more important for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can rely less on bank financing