growth patterns of the european venture capital industry abstract although the european venture capital industry has become nearly as important as its american counterpart little research has been done to describe its nature and importance this study gives in the first place an overview of the importance of the venture capital industry in the major european countries thereafter we look for funding and investment patterns in the different european countries we hypothesize that there is a difference between countries in which the venture capital industry is just emerging and those where the venture capital industry is since long established the data are mainly but not solely taken from the yearly statistics of the european venture capital association evca and cover the period 1984 1989 the characteristics we look at are 1 the sources of the funds flowing into the industry broken down with respect to investor type and geographical location of the investor and 2 the investments broken down with respect to investment stage using the evca definitions of the different stages geographical location degree of syndication and industrial sector of the investee companies in europe as a whole the most important group of investors are the banks 28 the pension funds 17 and the insurance companies 12 banks dominate the swiss industry 48 corporate investors dominate the german swedish and portuguese industries whereas these are nearly completely absent in denmark 2 ireland 4 and the united kingdom 5 eighty percent of all venture capital funds are raised domestically 7 in another european country and the remaining 13 in a non european country almost half of the european investments 44 are made in the expansion stage management buy outs mbos account for another 36 only 14 is invested in seed or start up companies much less than the 30 in the u s half of the venture capital investments in the united kingdom are buy outs the highest start up investment activity takes place in austria and spain on average more than half 54 of the invested amount in europe is syndicated but only 6 internationally while 10 is invested internationally we also search for similarities and dissimilarities in the characteristics of the sources of funds and of the investments the hypothesis is that a growth pattern can be distinguished determining the maturity of the venture capital industry in a particular country the characteristics that we think would discriminate most among the different industry stages are the importance of government agencies pension funds and insurance companies sources of funds of start up later stages or mbo investments and the percentage of international and syndicated investments cluster analyses show that there is a growth pattern but it is less clear than expected characteristics of mature industries are a bigger size relative to the gross national product of the country the presence of pension funds and insurance companies as investors in the industry the syndication of the deals and the absence of the government as an investor in the 1980s investments in management buy outs are mainly done by the mature industries no pattern can be distinguished for the investments in early or later stages the major implication from this study is the fact that the european venture capital industry cannot be approached as a single undifferentiated industry each country has its own structures institutions and policies which make the venture capital industries in the different countries have unique characteristics moreover the european venture capital industry has different characteristics than the american industry this has to be taken into account when comparing both industries

restabilizing matching markets at senior level abstract we study in many to one matching markets the restabilization process of a group stable matching disrupted by a change in the population if firms are not allowed to fire workers the market always reaches stability again only if the disruption is due to the opening of positions by firms or the retirement of workers this is shown by designing an algorithm which always leads to a group stable matching the algorithm mimics markets where firms make offers and workers accept the offer of their favorite firm if firms are allowed to fire workers we construct another algorithm which produces a group stable matching when the disruption is due to the entrance of workers or the closure of positions in this algorithm unemployed workers make offers to firms in both cases of disruption we require firms to have q substitutable preferences

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

attitudes and behaviors of informal investors toward early stage investments technology based ventures and coinvestors abstract seed capital financing for new firms is important to the commercialization of business innovations yet few entrepreneurs have the personal resources necessary to finance very early stage ventures and they often find themselves relying on external sources of seed capital their personal financial capabilities can easily become exhausted and the venture capital industry represents only a partial source of needed capital for start up and infant firms in recent years researchers have discovered the individual of financial means who invests a portion of his assets in early stage risk ventures this individual is variously termed an informal investor or an angel following an initial study by seymour and wetzel in 1981 researchers have expanded the knowledge about the backgrounds investment interests and behavioral patterns of informal investors the fact that informal investors generally invest within 50 miles of their homes or offices makes their participation in the entrepreneurial process particularly important for local economies our understanding of the general role of informal investors in risk venture financing has been greatly enhanced by prior studies however additional work is needed to identify characteristics of persons committed to start up firms or to technology based ventures two especially important types of business activity in the regional competition for economic development fifty five informal investors participated in a mail questionnaire modeled after prior studies sponsored by the small business administration respondents differentiated themselves on a scale of very early stage start up versus later stage risk venture investments and on a scale of technology oriented versus nontechnology oriented investments informal investors in this sample also differed on the average number of coinvestors including institutions per investment implications arise from the study for individuals interested in regional economic development and for entrepreneurs seeking seed capital first persons more committed to start up investing are more likely to have been or to be currently entrepreneurs themselves also these individuals may not be the most visible community members in terms of past entrepreneurial success and acquired wealth in fact persons committed to start up investing tend to have a lower annual income and lower net worth than persons investing in later stage risk ventures individuals playing this important financing role are particularly hard to identify a valuable key to their identification may lie in the fact that they tend to have worked or currently work in ventures similar to those in which they invest individuals committed to investments in technology oriented risk ventures give very little information about their personal characteristics however they do indicate a considerable amount about their investment patterns these investors play a higher risk higher return investment game than do persons less committed to technology based firms technology oriented investors also report a number of actions that appear to help them manage the risks inherent in their investment behaviors contrary to conventional wisdom about informal investors in general technology oriented investors use friends as referral sources less frequently people more interested in technology based ventures in the future look more to business service professionals investment business brokers and accounting law persons as referral sources finally a person s pattern of coinvesting indicates that individual s orientation toward risk a greater number of individual coinvestors in a typical deal is associated with a willingness to invest further from home for example and with a lower return expectation also persons investing with a fewer number of different types of coinvestors individuals and institutions tend to have more personal entrepreneurial experience to invest more in very early stage ventures and to be more interested in financing inventors this study is relevant to community leaders and entrepreneurs in several ways first the project begins to ask pertinent research questions about types of informal investors who play particularly important roles in local economic development second a more differentiated view of the role of the informal investor is suggested because special characteristics of start up investors and technology based investors can be distinguished third some initial clues about identifying these key individuals emerge the study demonstrates a productive line of thinking for community leaders and entrepreneurs in the risk venture financing process

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 economic impact of agricultural extension a review the history of economic development shows that few countries have achieved sustained economic growth without first or simultaneously developing their agricultural sector in most developing countries agriculture is the most important economic activity providing income employment and foreign exchange without an efficient agricultural sector a country is severely constrained in its ability to feed itself or import foreign products for domestic consumption and development rapid technological advances in agriculture have occurred since world war ii these advances have induced great changes in agricultural production and also highlighted the importance of a rapid and efficient transfer of advanced knowledge to the farmer when farmers become aware of the availability of new technology they may have inaccurate perceptions of the related costs and benefits as information availability may be limited as farmers decisions are based on their perceptions their resource allocation and technology choice will deviate from the social optimum if perceptions do not coincide with the correct attributes of the technology both society and the farmers as individuals would gain from improved information and theoretically there should exist a market for information however information on improved agricultural technology is often a public good because the provider of the information cannot exclude other potential users from free access to information provided to one user and the value of the information is not directly affected by the number of users while many instances of market activities in various aspects of agricultural information are observed e g specialized information on pest man

comparative statics in matching markets abstract this paper studies the comparative statics of adding agents to matching markets that generalize the marriage and college admissions markets of d gale and l shapley amer math monthly 69 1962 9 15 it is shown for the wide class of matching markets studied by a roth econometrica 52 1984 47 57 that adding an agent to one side of the market weakens the competitive positions of the other agents on that side and strengthens the competitive positions of the agents on the other side

evaluating the impact of agricultural extension on farms performance in crete a nonneutral stochastic frontier approach this article attempts to integrate the production and the efficiency based approaches for evaluating the impact of extension on farms performance for this purpose the nonneutral production frontier model is used and the empirical analysis refers to a sample of farms from crete greece the empirical results support the proposed formulation instead of either the production or the efficiency based formulations as extension was found to have a statistically significant effect on closing both the technology and management gaps public and private extension services were found to be competitive in the production function and complementary in the technical inefficiency effect function in addition farms using both public and private extension services achieved a higher degree of technical efficiency than those using either public or private extension services and farms with no extension services were found to be the least efficient

livelihoods and farm efficiency in rural georgia this study contributes to the literature on the role of livelihood strategies in rural growth and poverty reduction it distinguishes between livelihood diversity strategies that contribute to sustainable growth in household incomes and those that mainly have a coping function it suggests that typically the contribution of livelihood diversity to growing household income is through relaxing dependence on credit for access to capital in this scenario livelihood diversity would lead to higher technical efficiency in agriculture via investment and thereby to higher household incomes survey data from georgia are introduced and used to test these hypotheses using a bayesian stochastic frontier approach the findings are relevant to defining more clearly the scope and aims of policies to stimulate the rural non farm economy in developing and transition countries

nonparametric analysis of technical pure technical and scale efficiencies for food crop production in east java indonesia abstract nonparametric analysis of technical efficiency for irrigated farms in the madiun regency in the west central part of east java indonesia is conducted using linear programming techniques this procedure allows the relative technical efficiency for each farm to be determined and for inefficiencies to be decomposed into pure technical inefficiency and scale inefficiency and does not require restrictions or assumptions regarding functional form to be placed on the data farmers in madiun generally are efficient relative to each other farmers operating inefficiently do so more often because of scale inefficiencies rather than pure technical inefficiencies a majority of the farms operate in the region of decreasing returns to scale rather than increasing returns to scale farmer age the level of diversification of cropping activities and high school education were found to be related to technical efficiency in the rainy season under irrigated conditions other socioeconomic factors were not statistically significant the results imply that inefficient farms use excessive levels of inputs particularly nitrogen fertilizer this is perhaps due to the lingering effects of past input subsidization policies particularly of fertilizers in indonesia or to risk reducing behavior the results also imply that current government policies to encourage diversification of cropping practices in java may lead to greater technical inefficiencies in production in addition extension education targeted to younger farmers with low levels of formal education would improve efficiency

technical efficiency and productivity of maize producers in eastern ethiopia a study of farmers within and outside the sasakawa global 2000 project abstract this paper investigates the technical efficiency of two samples of maize producers in eastern ethiopia one involving farmers within the sasakawa global 2000 project and the other involving farmers outside this program the study uses stochastic frontier production functions in which the technical inefficiency effects are assumed to be functions of the age and education of the farmers together with the time spent by extension advisers in assisting farmers in their agricultural production operations for the cross sectional data obtained for the 1995 96 agricultural year cobb douglas stochastic frontiers are found to be adequate representations of the data given the specifications of the translog stochastic frontiers for farmers within and outside the project the empirical results indicate that farmers within the sg 2000 project are more technically efficient than farmers outside the project relative to their respective technologies the mean frontier output of maize for farmers within the sg 2000 project is significantly greater than that for the farmers outside the project

cross border venture capital investments the impact of foreignness on returns against the background of the growing internationalization of venture capital vc investing this is the first global comparison of the returns generated by individual domestic and cross border deals we examine investments worldwide during 1971 2009 and find that cross border investments significantly underperform compared with equivalent domestic investments returns are negatively affected by geographic distances cultural disparities and institutional differences between the home and host countries returns on cross border and domestic deals also decline after the late 1990s international portfolio diversification and the saturation of domestic markets may explain why vc investors make cross border investments despite poor expected returns

multistage financing of technical start up companies in silicon valley abstract financing remains an issue that entrepreneurs face long after their initial financing has been obtained in technical companies that face changing customers competitors and technology the need to finance new products to replace earlier products can be of vital importance to growth and survival venture capital firms that invest in technical companies also recognize the need for subsequent financing to maintain growth and thus protect the initial investment this research explored both the venture capitalist s and the entrepreneur s viewpoints the principal questions asked in the research were 1 how are subsequent rounds of investment considered and made by venture capitalists and 2 what problems occur in the entrepreneur s search for subsequent funding a combination of in depth interviews and mailed questionnaires was used in the research to obtain responses from a sample of venture capitalists and entrepreneurs in silicon valley this approach produced observations on the venture capitalists methods of making risk return trade offs and on the reasons why entrepreneurs face problems in obtaining funding for second new products specifically it was found that venture capital firms reduce the risk associated with funding young companies by showing preferences for certain stages of financing or for funding single versus multiple round investments these preferences appear to be idiosyncratic and entrepreneurs must be careful to deal with venture capitalists whose tendencies are consistent with the entrepreneurs goals it was also found that a major problem faced by entrepreneurs seeking funding for second products is the effort required for the search this effort takes away from their ability to perform day to day management activities at a crucial time in the growth of the firm implications are drawn for improving the effectiveness of entrepreneurs and venture capitalists efforts as well as for future research

efficiency in agricultural production the case of peasant farmers in eastern paraguay abstract this paper contributes to the productivity literature in developing country agriculture by quantifying the level of efficiency for a sample of peasant farmers from eastern paraguay a stochastic efficiency decomposition methodology is used to derive technical allocative and economic efficiency measures separately for cotton and cassava an average economic efficiency of 40 1 for cotton and of 52 for cassava is found which suggests considerable room for productivity gains for the farms in the sample through better use of available resources given the state of technology gains in output through productivity growth have become increasingly important to paraguay as the opportunities to bring additional virgin lands into cultivation have significantly diminished in recent years no clear strategy to improve farm productivity could be gleaned from an examination of the relationship between efficiency and various socioeconomic variables one possible explanation for this finding is the existence of a stage of development threshold below which there is no consistent relationship between socioeconomic variables and productivity if this is the case then our results suggest that this sample of paraguayan peasants are yet to reach such a threshold hence improvements in educational and extension services for example would be needed to go beyond this threshold once this is accomplished additional productivity gains would be obtained by further investments in human capital and related factors

the entrepreneur s search for capital abstract the popular media have been inundated with stories of the spectacular success of start up companies whose very existence let alone their meteoric growth would not have been possible without the infusion of venture capital by comparison there is a dearth of scientific research on the topic of venture capital in this article we take a systematic look at entrepreneurs in search of risk capital this inquiry is based upon five data bases including surveys of venture capitalists and entrepreneurs we have tracked 193 ventures which were denied venture capital surveyed 179 new high technology companies in northern california and reviewed the dun bradstreet credit reports of 145 new ventures in california in sic codes related to the high tech sector with follow up interviews of 86 of these 145 start ups

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

who bankrolls high tech entrepreneurs abstract where do new technology based firms ntbfs raise outside equity capital to answer that question financial histories were collected from 284 technology based firms founded in new england between 1975 and 1986 financial histories included the year of each round of financing the source the amount and the stage of the financing the 284 firms represented 27 of 1 073 new england ntbfs founded between 1975 and 1986 contained in corptech s corporate technology database one hundred seven 38 were launched with no outside equity investors one hundred seventy seven firms 62 raised 671 million in 445 rounds of equity financing private individuals excluding the founding management team and their relatives were the most common source of equity capital providing 177 rounds of financing for 124 firms ninety firms raised equity from venture capital funds in 173 rounds of financing fewer than 40 firms raised capital from any other single source nonfinancial corporations public stock offerings and other the sample firms raised 76 million from private individuals but almost five times that amount 370 million from venture capital funds public stock offerings accounted for 122 million for all investors the size of a round of financing tended to increase with the stage of the financing overall a typical round of individual investor financing was under 500 000 a typical round of financing from venture capital funds was between 1 million and 3 million public stock offerings typically exceeded 4 million seed and start up financing accounted for 60 of the rounds and 54 of the dollars provided by private individuals as compared to 28 of the rounds and 20 of the dollars provided by venture capital funds the most significant outcome of this research is the conclusion that private individuals and venture capital funds play complementary rather than competing roles in the financing of ntbfs this complementary relationship has two dimensions size and stage at all stages venture capital funds tend to invest substantially more dollars per round than do private individuals second compared to a significantly higher propensity to invest at the seed and start up stages than other investors private investors appear to have longer exit horizons and less risk aversion in fact private individuals provided the seed capital that launched the majority of ntbfs in the sample

splitting the firm between the entrepreneur and the venture capitalist with the help of stock options abstract the net present value npv rule provides the basic principle underlying the sharing of ownership in a new venture the principle often fails because the entrepreneur and the venture capitalist cannot agree on the potential profitability value of the venture first the venture capitalist may simply have a less optimistic interpretation of the data related to the venture s profit potential we refer to this discrepancy between the expectation of the entrepreneur and that of the venture capitalist as the expectation gap second the venture capitalist knows that for the venture s potential to be realized the entrepreneur manager must devote his full effort to the success of the organization this is not a problem if the entrepreneur owns the entire project once the ownership is shared however especially when the venture capitalists own the majority of the shares the entrepreneur has a financial incentive to apply less than the diligence required to control costs and protect the interests of the outside equity holders this financial incentive arises because any perk including leisure or shirking consumed by the entrepreneur does not have to be shared with the venture capitalist while every dollar saved does this is not solved by the venture capitalist acquiring a larger percentage of the company that will only exacerbate the problem as it decreases the cost to the entrepreneur of each dollar of the company s funds spent for the perk we refer to this as the motivation problem in the article we show how stock options can be used to deal effectively with both problems first stock options are always worth more to the optimist than to the pessimist thus there will be a reverse valuation gap with respect to the stock options we show that by issuing stock options to the entrepreneur it is possible to close the expectation gap to solve the motivation problem the entrepreneur s stake must be increased to the extent where the cost to him of excessive consumption of perks will be as high as the benefit he derives this can be accomplished by taking advantage of two valuation characteristics of stock options first stock options are worth only a fraction of the value of the underlying equity shares thus it is easier for the venture capitalist to give up these rather than the underlying equity shares second the stock options will fluctuate with the venturing firm s value at a higher rate than the entrepreneur s percentage ownership thus by issuing the entrepreneur a combination of equity shares and stock options it is possible to increase significantly the entrepreneur s cost of shirking or excessive consumption of perks under idealized conditions it is possible to design a financing arrangement that eliminates the motivation problem the principles discussed here provide benchmarks that both the entrepreneur and the venture capitalist may wish to bring to the negotiating table in the end there is no substitute for the building of trust between the two to give the venture the maximum chance of success

education and technical efficiency in small farm production differences in technical efficiency are observed as differences in the physical output produced from a given bundle of physical inputs these differences are not considered in the traditional theory of the firm wherein the output resulting from a particular input bundle is specified as the maximum possible according to the latest technology presupposing technical efficiency the theory of the firm concentrates on allocative efficiency on the choice of the particular input bundle that maximizes profit given prices and the technically efficient production function the best utilization of any particular input combination according to henderson and quandt is a technical not an economic problem 1 economic theory notwithstanding empirical studies of production must take into account differences in the utilization of inputs since in the real world producers are not all equally efficient it is conceptually convenient to divide the output variation observed over a number of firms into two parts one that stems from variation in physical inputs and another that reflects differences in technical efficiency timmer has developed an approach by which to compare the technical efficiency of firms using linear programming he determines the function that relates physical inputs to output for the most efficient of a sample of firms in other words he finds the production surface that is the envelope of all the observation points he calls this function the technical frontier the relative tech

the role of risk taking in singapore abstract this study explores the differences between entrepreneurs and non entrepreneurs in the city state of singapore with regard to the risks involved in the decision to become an entrepreneur the sample is composed of 30 chinese entrepreneurs and 44 singaporean managers and engineers employed by six multinational corporations whether or not entrepreneurs are more risk oriented than managers is not clear from this study but the data from this study demonstrate that entrepreneurs are able to give up job security and take specific kinds of risks related to launching a new venture because they have confidence that they will either succeed or be capable of carrying on a successful career whereas job security is a critical variable that holds non entrepreneurs to the status quo in singapore the potential loss of self respect and self image the fear of failure appears to be a force that drives chinese entrepreneurs in singapore to succeed although the research for this study began from the widely held premise that risk was a psychological attribute the research process revealed that risk is more productively seen as a decision making variable the research in this study like previous studies on entrepreneurs and risk also assumes that choice was the core of risk taking it is doubtful however that individuals have a generalized risk propensity for risk is highly contextual risk is most likely to be seen in specific kinds of entrepreneurial decisions such as the decision to become an entrepreneur the decision to grow a new venture through new product development international market entry or other strategic options and decisions related to control issues risk should be viewed as part of a complex multivariate process and attention needs to be given in the future to the study of risk identification risk assessment formulation of risk strategies and the management of risk risk is an inherent aspect of any opportunity and consequently is the darker side of the heart of entrepreneurship in a chinese entrepreneurial setting these factors and decisions are part of a complex social process

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

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

venture capital in transition a monte carlo simulation of changes in investment patterns abstract this article examines the nature of the investment process which has historically generated high returns for venture capital funds and the impact on fund returns of perceived changes in management practice and the structure of the industry the article outlines some policy implications for fund managers investors and the general management of corporations the authors have investigated the investment process and the changes in the nature of the process through the use of a monte carlo simulation model information gathered from interviews with fund managers and the available published data on venture fund performance including proprietary surveys was used to develop and calibrate the model the model replicates the relatively high average fund returns and distribution of returns for funds through the early 1980s the model simulates a multistaged investment process which draws on a pool of investment opportunities which have a log normal distribution of returns and a low zero average return the model readily permits the exploration of the impact of management and industry practices on fund returns the conditions identified by the authors which led to high rates of return on the part of venture capital funds include 1 1 multistaged investment or commitment of funds on an incremental basis with evaluation of venture performance before commitment of additional fund 2 2 objective evaluation of venture performance with the clear distinguishing of winners from losers 3 3 parlaying funds or having the confidence to commit further funds to ventures identified as winners 4 4 persistence of returns from one round to the next which implies that valuable information is gained from previous rounds of investment in the same venture 5 5 long term holding of investment portfolios for a period sufficient for geometric averaging of compound returns to cause the winners to take over or raise portfolio returns taken together these conditions have permitted venture capital funds to historically realize strong average returns with a few of them realizing extraordinary returns the article also explores the consequences of what some believe is happening in the industry a trend toward holding investments for shorter periods increased competition both for investments and later in the product market arena and a growing lack of loyalty between investors and investees all of these conditions and their indirect consequences were shown by the model to negatively impact the limited partners in the venture capital funds while general partners given the structure of fees and the distribution of investment returns generally realized a reasonable to extraordinary return the article outlines a number of management and investment policy implications for investors and fund managers

the aftermarket performance of small firm initial public offerings abstract the dream of many entrepreneurs is to some day take his or her growing small firm public and to thereby become the ceo of a publicly traded corporation currently entrepreneurs are continuing to utilize initial public offerings ipos as a viable source of venture financing ipos also represent a viable mechanism for harvesting venture capital and entrepreneurial investments the touted entrepreneurial benefits of taking a company public include the abilities to borrow additional funds return to the public equity market negotiate mergers without depleting cash the potential for enhanced personal wealth and so forth investors in small firm public equity issues are often motivated by the potential for discovering another apple computer or perhaps an ibm at the ground floor this study empirically examines the aftermarket returns of small publicly held firms that have issued initial public offerings aftermarket returns refers to stock returns immediately after a stock begins trading the study specifically examines two questions first is there a positive risk return relationship for small firm aftermarket returns where higher firm risk will generate higher aftermarket return second will aftermarket returns show on industry effect where certain industries will automatically generate higher returns answers to these questions will affect the strategic financial alternatives available to entrepreneurs both before and after going public and will also affect the decisions of investors interested in financing small public corporations the research findings indicate that entrepreneurs planning to take younger firms public will probably not have available to them numerous subsequent financial alternatives utilizing corporate stock if the true aftermarket performance of their stock is taken into consideration likewise investors in small firm public issues may also be disappointed in the aftermarket performance of younger firms a positive risk return relationship where age was a proxy measure of risk did not exist this was true even though the initially quoted returns of these same younger firms may have been substantial on the other hand the aftermarket performance of older firms is typically favorable finally the study suggests that neither entrepreneurs nor investors should bet solely on a particular industry categorization to carry their aftermarket stock performance while certain industries indicated significant positive initial returns aftermarket returns based on industry classification were generally not statistically significant investors should therefore always exercise firmspecific due diligence and research before investing in small firm public equity issues since the variance of their aftermarket market returns tends to be large

the effects of education in agriculture evidence from nepal the impact of education in modernizing and traditional agricultures of nepal is investigated by utilizing a production function framework education is found to have higher payoff to productivity in a modernizing environment than in traditional agriculture higher college education has a significant role in a modernizing environment but not in the traditional area while both worker and allocative effects of education contribute positively to agricultural production allocative effect surpasses worker effect in both environments however only the input allocation component of the allocative effect is important in traditional areas while both input allocation and input selection components are crucial in a modernizing agriculture

education and technical efficiency during the green revolution in pakistan tion is more likely to arise during disequilibrium caused by technical change in agriculture this may be because technical change renders the existing cultural practices obsolete or inadequate and calls for an adjustment a more educated farmer is supposed to make the required adjustment more quickly this article tests the foregoing hypothesis in pakistan agriculture during the green revolution when introduction of new crop varieties disturbed the prevailing equilibrium for this purpose a production function approach is used and the analysis is conducted not only for the new crop varieties but also for their traditional counterparts the results lend support to the hypothesis by showing that the worker effect is stronger for new crop varieties than it is for traditional ones the article is divided into five sections in the next section a brief review of the literature is presented section iii presents the hypothesis and discusses the methodology used for the analysis the results and their policy implications are discussed in section iv and section v concludes the article ii brief literature review in a pioneering study exploring the economic effects of education z griliches used production function analysis to highlight the contri

predictors of success in new technology based ventures abstract several recent studies have examined the causes of success and failure in new ventures from these a three level analysis has evolved which considers the management the venture s strategy and its competitive environment empirical testing is still at an early stage but results have generally supported the three level approach however the findings are not very strong this study considers only high potential technology based new ventures the companies on which venture capitalists concentrate it suggests that such firms face unusual time pressures and uncertainty and that their responses to these forces are major determinants of success or failure we propose 11 easily measured qualities describing management the firm s strategy and its environment which should influence how quickly the venture can act these should predict a new venture s performance the 11 attributes are tested on 36 new ventures representing essentially all of the startup investments of a major venture capital firm between 1974 and 1982 the data are taken from the firms original business plans performance is measured from the subsequent financial history using the compound rate of return to all shareholders founders employees and investors the ventures in this sample are primarily based on electronic or information technologies they are highly successful as a group with an average compound rate of return of 98 per year they are also very risky the standard deviation of returns is 171 per year and in 11 of 36 cases the shareholders lost on their investments results from a single sample must always be treated cautiously however several findings are strong enough to merit further study and to be incorporated as a part of a process for evaluating new ventures 1 1 a set of four measures representing all three areas explains 57 of the variance the four completeness of the founding team technical superiority of the product expected time for product development and buyer concentration all behave as expected the first two have a positive effect the latter two have an inverted u shaped relationship with an optimum development time of 12 months and an optimum number of customers of approximately 60 three other measures prior shared experience of the founders competitive conditions and projected market share show an influence when management strategy and environment are examined one area at a time 2 2 these relatively simple measures predict success well probably at least as well as any other study has done using more subtle measures 3 3 the measures used in this study though they have strong predictive power apparently did not influence the young capitalists otherwise the relationships should have been different when the return to venture capital investors was used in place of the total return in fact they were the same this suggests that the venture capital investors did not give sufficient weight to the qualities that we consider and could make better choices by giving greater attention to those measures 4 4 prospective entrepreneurs and investors should benefit from using our model aspart of their screening processes specifically they might calculate a predicted rate of return if it is low say below 30 per year they should examine the reason for the low score and consider whether circumstances exist which outweigh or invalidate that apparent weakness 5 5 an additive model seems realistic that is one can combine dissimilar qualities with appropriate weighting for relative importance to arrive at an overall figure of merit with strong predictive power the specific parameters imply that a company must have a complete management team and score well on two of the remaining three measures in order to be an attractive opportunity more generally the model allows a practitioner to make a rough assessment of the tradeoffs among management product and industry this is important because few if any new companies have all the qualities an investor may desire 6 6 although individual qualities of the founders are no doubt important this remains a difficult matter to demonstrate statistically 7 7 firms exist in an ever changing competitive environment to the extent that these findings are valid beyond this sample they may have been recognized and incorporated in more recent new ventures if so this may change the nature of competition and alter the key determinants of success or failure

specialization versus diversification as a venture capital investment strategy abstract much important work has informed us of rates of return earned by venture capitalists the importance of venture capitalists to the going public process and the criteria venture capitalists use to evaluate deals this paper seeks to add to the literature by testing hypotheses based upon both the finance and strategic management literature regarding certain venture capitalist investment practices venture capitalists seek to control or manage risk driscoll 1974 macmillan siegel and subbanarasimha 1985 financing structure and investment strategy provide several means for venture capitalists to do this tools available to the venture capitalist include portfolio diversification to spread risk across different industries firms or hot cold ipo markets to minimize unsystematic or investment specific risk information sharing networking and specialization can also be used to control unsystematic risk several hypotheses are developed from these conflicting perspectives data used to test the hypotheses are derived from responses to a survey of venture capitalists three hundred surveys were mailed to venture capitalists 98 or 32 7 returned usable responses portfolio diversification is a well known means to control risk exposure by reducing unsystematic or specific risks however bygrave 1987 1988 as well as financial intermediation theorists argues that maintaining a high degree of specialization is useful for controlling risk as well as for gaining access to networks information and deal flow from other venture investors the analyses of this paper build upon bygrave s work we construct more rigorous tests to resolve the conflict between the diversification and information sharing hypotheses our hypothesis tests were usually resolved in favor of the information sharing view for example venture capitalists in the sample that were heavily involved in seed round financing were diversified across fewer numbers of firms and industries further evidence in favor of information sharing is seen in investment patterns across different financing stages diversification would imply maintaining a portfolio of investments across the different investment stages the information sharing specialization view would argue that it is best to stay focused on a single stage or several connected stages the empirical evidence from the sample once again favors the specialization perspective this research provides information of use to venture capitalists as they seek information on how best to control risk to entrepreneurs as they learn of the factors venture capitalists consider in determining their investment strategy and to academicians as such studies provide insight to general industry practice and thus help to form the basis of classroom discussion and future research endeavors

measuring efficiency at u s banks accounting for heterogeneity is important abstract estimates of bank cost efficiency can be biased if bank heterogeneity is ignored i compare x inefficiency derived from a model constraining the cost frontier to be the same for all banks in the u s and a model allowing for different frontiers and error terms across federal reserve districts i find that the data reject the single cost function model x inefficiency measures based on the single cost function model are on average higher than those based on the separate cost functions model the distributions of the one sided error terms are wider for the single cost function model than for the separate cost functions model and the ranking of districts by the level of x inefficiency differs in the two models the results suggest it is important when studying x inefficiency to account for differences across the markets in which banks are operating and that since x inefficiency is by construction a residual it will be particulary sensitive to omissions in the basic model

deal structuring in philanthropic venture capital investments financing instrument valuation and covenants philanthropic venture capital phvc is a financing option available for social enterprises that like traditional venture capital provides capital and value added services to portfolio organizations differently from venture capital phvc has an ethical dimension as it aims at maximizing the social return on the investment this article examines the deal structuring phase of phvc investments in terms of instrument used from equity to grant valuation and covenants included in the contractual agreement by content analyzing a set of semi structured interviews and thereafter surveying the entire population of phvc funds that are active in europe and in the united states findings indicate that the non distribution constraint holding for non profit social enterprises is an effective tool to align the interests of both investor and investee this makes the investor behaving as a steward rather than as a principal conversely while backing non profit social ventures philanthropic venture capitalists structure their deal similarly as traditional venture capital as the absence of the non distribution constraint makes such investments subject to moral hazard risk both in terms of perks and stealing and social impact focus

farmer behavior under risk of failure cudari c department of agricultural and resource economi division of agriculture and natural resources l university of california ut workingpaperno 488 j re v farmer behavior under risk of failure by william e foster and gordon c hausser giannini foundation of agricultural economics uerary cr california agricultural experiment station giannini foundation of agricultural economics october 1990

the nature of the farm abstract using a model based on a trade off between moral hazard incentives and gains from specialization this paper explains why farming has generally not converted from small family based firms into large factory style corporate firms nature is both seasonal and random and the interplay of these qualities generates moral hazard limits the gains from specialization and causes timing problems between stages of production by identifying conditions in which these forces vary we derive testable predictions about the choice of organization and the extent of farm integration to test these predictions we study the historical development of several agricultural industries and analyze data from a sample of over 1 000 farms in british columbia and louisiana in general seasonality and randomness so limit the benefits of specialization that family farms are optimal but when farmers are successful in mitigating the effects of seasonality and random shocks to output farm organizations gravitate toward fa

angel financing and public policy an overview abstract within the past few years public efforts have sought to encourage individual or angel investors this article provides an overview of the motivations for these efforts it assesses the underlying challenges that the financing of young growth firms pose the ways that specialized financial intermediaries address them and the rationales for public efforts to encourage angel investors the final section raises a set of questions about the practical implementation of these efforts

bargaining size and return in venture capital funds abstract the terms of an investment by venture capitalists are the result of cooperative bargaining between the project originators owners or entrepreneurs and the financiers this study examines conditions under which bargains can be consummated the nature of the bargains and the way in which bargains are both influenced by venture fund size and also contribute to a theory of fund size as much as possible the theory of fund size and earnings is related to required rate of return concepts with the objective of explaining relative variations in the value of venture capital funds and of incorporating such investments within the general body of finance theory the most basic form of contract is a simple bilateral bargain between owners and fund managers with the shares of financing and earnings as the bargaining variables agency and other considerations can be factored into the resulting project value to be financed and partitioned an edgeworth box construction is used to establish the efficient pareto optimal set as the contract curve the two endpoints of the contract curve correspond respectively to the monopoly solution where there is one fund and many owners and to the competitive solution the nash bargaining solution of game theory can also be exhibited within this framework although we are careful to remain agnostic about whether or not this constitutes the only or even the best solution a first requirement is that some basis for agreement exists so that mutually beneficial bargains can actually be struck conditions most favorable to existence arise where 1 owners who cannot properly diversify their own investments are more risk averse or else suffer from some other financing impediment or 2 owners are more optimistic than fund managers on the prospects for the project fund size operating via the cost of capital can also affect the existence of solutions given that contracting is mutually beneficial the precise terms depend upon the relative bargaining power of funds versus owners this may depend upon required rates of return it also depends upon market structure the environment may be more conducive to monopoly surplus if search impediments exist for owners as they might for technological projects or if the market is in an early stage of development bargains are often asymmetric wherein the fund derives a higher share of earnings than pro rata with its share of financing fund size and bargaining power are related especially where fund investors or managers rely on the fund for portfolio or internal diversification as opposed to external diversification in which they invest extensively in other assets with internal diversification the fund s cost of capital is size dependent in terms of the number of projects on the books larger funds acquire bargaining power via a lower cost of capital leading to higher rates of actual returns and therefore higher fund value such effects are not present where investors have external diversification because fund returns are generally asymmetric arising from the significant risk of project failures it is sometimes thought that the asymmetry constitutes a factor to be priced as the asymmetry is size dependent this would make the cost of capital size dependent as well however it turns out that the asymmetry is not in fact priced and that standard capm arguments continue to hold thus for external diversification fund size is mainly a matter of economies of scale in administration evaluation and monitoring in all cases fund size can be described in terms of equality at the margin between required and available rates of return and we describe the influences that impinge on both schedules generally speaking the kinds of bargains actually observed as well as the rates of return and variations therein across funds and over time are all consistent with predicted bargaining features they appear also to be consistent with basic finance theory suggesting that special features such as failure to maximize the expected utility of monetary returns are not really needed

entrepreneur passion and preparedness in business plan presentations a persuasion analysis of venture capitalists funding decisions we investigated the extent to which venture capitalists vcs perceptions of entrepreneurial passion influence the vcs investment decisions we defined entrepreneurial passion as an entreprene

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

capital market myopia abstract the purpose in writing this article is to focus attention on a phenomenon we call capital market myopia a situation in which participants in the capital markets ignore the logical implications of their individual investment decisions viewed in isolation each decision seems to make sense when taken together however they are a prescription for disaster capital market myopia leads to overfunding of industries and unsustainable levels of valuation in the stock market we use the winchester disk drive industry to elucidate the phenomenon we argue that capital market participants should have seen the problem coming they should have known that valuation levels were absurd based in large part on the greater fool theory the data necessary to anticipate the problem were readily available before the industry shakeout began and stock prices collapsed there are several lessons which we believe can be learned by careful examination of the disk drive experience in the period under study these include taking the broad view of the industry is the key to profitable investment the investment mania visited on the hard disk industry contained inherent assumptions about long run industry size and profitability and about the future growth profitability and access to capital for each individual company these assumptions had they been stated explicitly would not have been acceptable to the rational investor certainly there are valuations which arise which cannot be justified under any circumstance these are the times for the manager to raise money from the public capital markets those managers who took advantage of unsustainable valuation levels now have a chance to survive the shakeout growth is not equivalent to profitability the high growth rate in the industry made it the focus of considerable managerial investor and technological attention the industry attracted so many resources that the growth had high probability of being unprofitable excesses in the capital market turned an opportunity into a disaster profits for some are not equivalent to a good business many players made high profits by investing in the hard disk drive business including the investment bankers and certain of the venture capital groups which invested early enough to catch the wave of euphoria in the stock market and still sell under rule 144 many others rode the cycle up and down without liquidity for many buyers of disk drive stocks in 1983 losses were massive short term successes of some gave the illusion of long term profitability for all investors should not be fooled by such invevitably ephemeral successes market instability can be all bad news very rapid change often creates entrepreneurial opportunity it also creates risk analysis of the hard disk drive industry reveals the dark side of rapid technological evolution and of customer instability early players are often preempted by changes in technology and in customer needs early birds are not always winners in product markets but late comers are almost always losers recognizing the chain one of the more important lessons to be learned from the tale of the disk drive industry is that all players entreprenuers venture capitalists investment bankers industry analysts and investors must recognize the chains involved in such a process first there was a technological chain a series of bets on technological advances in disk drive components disk drive designs and end user designs then there was a financial chain a series of related bets on the internal financial health of each player in the technological chain and on the nature of access to capital in the private and public markets the likelihood that any player in the disk drive industry would prosper without a serious setback due to a weak link was effectively zero indeed weaknesses in the chain were created by exactly the same people whose financial success depended on an unbroken series of favorable outcomes during this same period the public capital markets were also a large supplier of funds to the disk drive industry the total amount of money raised in public offerings of common stocks for participants in the industry was over 800 million during the middle part of 1983 the capital markets assigned a value in excess of 5 billion to 12 publicly traded venture capital backed hard disk drive manufacturers the strong market valuation of these companies paralleled the boom in other high technology stocks and rising valuation levels in the stock market in general table 2 contains data on stock prices and valuation levels for some disk drive manufacturers and table 3 provides general data on the economy and capital markets

the gender gap in agricultural productivity the role of market imperfections abstractthis paper hypothesises that labour and credit market imperfections by discouraging off farm income generating activities and restricting access to inputs respectively affect female farm productivity more deeply than male productivity the paper develops a theoretical model which decomposes the contribution of various market imperfections to the gender productivity gap empirically we show that agricultural labour productivity is on average 44 per cent lower on female headed plots than on those managed by male heads 34 per cent of this gap is explained by differences in labour market access and 29 per cent by differences in credit access

the impact of agricultural extension on farm production in resettlement areas of zimbabwe in this paper we revisit the contested issue of the impact of agricultural extension on farm production we exploit two features of the data available to us its longitudinal nature and explicit measures of farmer ability we find that after controlling for innate productivity characteristics and farmer ability either using household fixed effects estimation or by including a measure of farmer ability and village fixed effects access to agricultural extension services defined as receiving one or two visits per agricultural year raises the value of crop production by about 15 per cent this parameter estimate is statistically significant however we also find variability in these parameter estimates across individual crop years with the impact being markedly different in drought and non drought years collectively these results suggest that although access to farm level extension visits does increase productivity even after controlling for innate productivity characteristics and farmer ability results from single year cross sectional studies should be treated with caution

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

privatization of agricultural extension services in the eu towards a lack of adequate knowledge for small scale farms small scale farming involves millions of households in the eu and plays an important role in the rural economy a significant percentage of these farms produce commodities for the market this productive dimension is often overlooked however as is the technical support needed by these farms the privatization of national farm advisory systems nfas has an impact on small scale farming that should be better assessed this paper which looks at the characteristics of intangible services helps demonstrate how the privatization of advisory services may have unexpected adverse effects on small farms the dismantling of coordinating authorities has made these farms less visible as a target client less direct interaction with advisors makes it more difficult to co produce knowledge that is relevant to their needs in addition back office activities such as scientific monitoring building and updating databases and scientific experiments have been restructured in a way which does not support their interests

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

new venture strategy and profitability a venture capitalist s assessment abstract this study uses theoretically justified criteria from the industrial organization io strategy literature and applies it to a new domain namely venture capitalists decision making specifically the study investigates the types of information venture capitalists utilize when evaluating new ventures and how venture capitalists use this information to assess likely new venture profitability in the interest of advancing our understanding of the decision making policies of venture capitalists this study addresses many of the limitations of previous research a review of io research suggests important relationships between a number of strategy variables and new venture profitability some of the relationships proposed by io strategy research are contingent in nature the strategy variables and their relationships with profitability are investigated in the domain of venture capitalists decision making individual and aggregate decision making analyses identified those strategy variables criteria venture capitalists utilize in assessing likely new venture profitability namely timing key success factor stability lead time competitive rivalry educational capability industry related competence timing key success factor stability interaction timing lead time interaction and timing educational capability interaction on average the most important criterion for venture capitalists in their assessment of profitability is industry related competence the second tier of importance is competitive rivalry timing and educational capability the third tier of importance is lead time key success factor stability and timing lead time interaction other interactions are less important therefore while venture capitalists use contingent decision policies main effects dominate if venture capitalists use a reported 8 to 12 minutes on average to evaluate a business plan sandberg 1986 then this study s findings may help the inexperienced venture capitalist allocate time towards assessing those attributes of primary importance although more complex relationships exist between the attributes the inexperienced venture capitalist can take comfort from this study s findings that main effects dominant amongst senior venture capitalists senior venture capitalists may take less comfort from their importance placed on main effects in light of research from io which suggests the importance of contingent relationships the results may also have practical application towards training how should venture capital firms train their new employees should venture capital firms rely solely on experienced venture capitalists lecturing the inexperienced on the criteria they use in assessing a new venture proposal like most decision makers venture capitalists have limited insight into their assessments and venture capital firms need to be aware of the gap between espoused policies and policies in use the information being taught needs to be supplemented with venture capitalists decision making research that investigates decision policies in use such as this study venture capitalist training could also involve experiential learning in conjunction with cognitive feedback about the decision policies used to accelerate the learning process experiential learning using cognitive feedback maximizes industry related learning while minimizing the cost of inexperienced decisions for the entrepreneur seeking capital this increased understanding of venture capitalists decision making may help them better target their business plans and presentations at those criteria venture capitalists find most critical to the profitability of a new venture

entry and structures of interest groups in assignment games abstract this paper presents several comparative statics results concerning the entry problem in assignment games the results compare sets of equilibria and hence do not require the usual assumption of a unique equilibrium by the device of a competing group generator the set of players is decomposed into three interest groups for which three forms of entry effects are identified for the group with the strongest entry effect it is found that generically 1 the benefit functions form a complete ordering and 2 the turnover effect dominates the unemployment effect the implications of these results to bargaining immigrations and matching problems are discussed

smallholder technical efficiency controlling for environmental production conditions abstract smallholder agricultural production depends heavily on environmental production conditions that are largely exogenously determined yet few data sets collect necessary detailed information on environmental production conditions this oversight raises the spectre of likely omitted variables bias because farmers input choices typically respond in part to environmental conditions moreover because environmental production conditions are rarely symmetrically distributed the omission also generally leads to upward bias in estimated technical inefficiency and to biased estimates of the correlates of estimated technical inefficiency as well using panel data from 464 traditional rice plots in cote d ivoire we show that controlling for heterogeneous environmental production conditions significantly changes inferences perhaps especially with respect to smallholder rice farmers estimated technical inefficiency

specialist versus generalist investors trading off support quality investment horizon and control rights abstract we model an entrepreneur s selection of either an active specialist or a passive generalist investor for an innovative venture that requires external equity for startup and expansion financing we assume that the specialist investor provides better support but has a shorter investment horizon than the generalist we particularly focus on the entrepreneur s net present value npv maximizing contract taking into account the specialist s potential moral hazard this latter might try selling his claim in a secondary transaction to an uninformed outside investor even though the project is unsuccessful and should be abandoned we show that the entrepreneur may trade off crucial contract parameters when seeking external financing either type of investor may be preferable contingent on the allocation of control rights the investor s support quality and investment horizon the chances of success and the venture s expected liquidation value

validation of the venture evaluation model in korea abstract this article examines the validity of the venture evaluation model in korea by directly comparing the relative importance of evaluation criteria on the funding decision with the relative importance of factors influencing venture s empirical performance specifically we first identify the relative importance of evaluation criteria based on whether a deal is accepted or rejected current evaluation model next we derive the relative importance of those criteria revealed in the empirical performance based on the success failure of ventures that overlap with the deals originally used as accepted cases performance based model finally to better understand the differences between the two models we measure the general perceptions of venture capitalists on the importance of those criteria without regard to specific deals normative model to identify potentially important criteria we reviewed the existing related studies on evaluation criteria and we interviewed 10 venture capitalists as a result we selected 31 evaluation items the questionnaire consists of two parts and deals with the following four cases in part a 1 1 case 1 general perceptions concerning the 31 criteria in part b 2 2 case 2 one of the most successful ventures 3 3 case 3 one of the least successful ventures 4 4 case 4 one of the rejected ventures using a five point scale we asked the respondents to rate the 31 criteria based on their general perceptions without referring deals case 1 and on the specific deals they had handled cases 2 3 and 4 to prevent any firm or respondent from affecting the results more than it ought to we distributed the questionnaire to each firm in proportion to the investment amounts we also asked the respondents to fill out only one questionnaire including four cases seventy four venture capitalists including 10 interviewed responded to this questionnaire they have worked as investment directors or managers in the top rated 20 venture capital companies selected according to investment amounts on the basis of the ratings of 31 criteria for the previous four cases we developed three investment models first the current evaluation model reveals which criteria are more important in deciding whether or not to fund the model measures the relative importance of evaluation factors in discriminating between the accept case 2 and case 3 and the reject case 4 decision second the performance based model consists of the relative weights of evaluation factors influencing the two performance categories success case 2 and failure case 3 this model shows the relative importance of evaluation criteria that are reflected in the venture s empirical performance finally we identify the normative model revealing the venture capitalists general perceptions concerning the importance of individual criteria in light of their past field experiences case 1 by comparing the three models we find that the importance of these criteria revealed from venture capitalists perceptions and empirical performances is fairly similar but not sufficiently reflected in the actual deal evaluation in particular the entrepreneur related characteristics are not considered the most important in evaluating venture proposals according to the current evaluation model but they do turn out to be the most important factors in evaluating empirical performance this is in strong contrast to the findings of some existing studies which contend that the entrepreneurrelated criteria ultimately determine the funding decision instead the result confirms the previous assertion that the evaluation of managerial capability is the most challenging task in the venture selection process in the current evaluation model financing ability is considered more important than either superiority of product and technology or production capability contrary to venture capitalists perceptions and empirical performance results therefore it seems necessary to raise the level of specialization of venture capital firms through the acquisition of managerial skills from developed countries and by enhancing the technical background of individual venture capitalists

some hypotheses about risk in venture capital investing abstract venture capital investing differs in important respects from investment decisions involving the securities of fortune 500 companies or decisions to purchase established companies which are generally made in accord with widely recognized financial models investing in new ventures involves a high level of uncertainty as well as a high risk of failure venture capital investing is characterized by high variability in the outcomes of new ventures and in the performance of venture capital portfolios venture capital investing decisions are complicated by a general lack of quantifiable financial and market data for early stage ventures and investment decisions remain hostage to unanticipated competitors market shifts and financial cycles some observers have suggested that venture capital investment decisions are primarily subjective assessments while the question of risk in venture capital investing has been addressed on an ad hoc basis in several empirical studies there has been little effort to develop a theoretical framework of risk perceptions and risk reduction strategies despite differences in investor experience investment preferences and tolerance for risk venture capital managers share many common perceptions of the risks involved in investing in new ventures and the distribution of those risks over the venture capital funded phase of development venture capital managers also utilize many common behaviors and strategies in adapting to these risks these perceptions and reactions to risk in investing and strategies for controlling risk can in theory be used to construct a behavioral framework that can predict how venture capital managers will behave in choosing between various investment opportunities in order to minimize risk and to maximize potential returns in an attempt to begin to identify various elements of such a behavioral framework of venture capital reactions to risk the authors have drawn upon psychological risk theory of decision making under uncertainty including classic expected utility theory later modifications to that theory by kahneman and tversky 1979 and coombs and huang s 1970 portfolio approach to risk that are applicable to venture capital investing these expected behaviors to risk have been used in conjunction with empirical studies of venture capital investment and portfolio outcomes distributions of investments within portfolios and venture capitalist perceptions of risk to propose nine hypotheses about how venture capital managers behave in making investment decisions these hypotheses include differences in variation and magnitude of returns for early stage versus later stage ventures explanations of how risk distributions change over the stagewise development of new ventures differences in the behavior of aggressive versus conservative investors in screening investment prospects and strategies utilizing a lower ideal level of risk to reduce the chances of achieving negative or sub normal final portfolio returns

education in production measuring labor quality and management production function studies have used the education of the head of the household or the average education of farm workers to assess the contribution of schooling to farm efficiency in this paper i critically examine the information content of these measures by developing a team production model which suggests separate education measures to approximate labor quality and managerial skills empirical analyses based on chinese farm household data show that the new measures are statistically superior to the existing alternatives there is evidence of centralized decision making on the farms where the highest schooling contributes the most to production efficiency

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 venture capital model of the development process for new ventures abstract for years researchers have hypothesized that new ventures develop in a fairly predictable chronological process by evolving through various functional and strategic developmental stages however cross comparable longitudinal data from large numbers of ventures are still not available to validate these stages of development hypotheses the study sought to determine whether venture capital firms which have extensive experience with the longitudinal development of new ventures operate in accord with a common theory about how this process operates these findings also represent a first step toward empirically validating various elements of stages of development theories the study analyzed the perceptions of the ceo or managing partner of 73 u s venture capital firms about key features of the development process for new businesses venture capital firms were asked whether they differentiated stages in the development process for each such stage information was elicited on what the stage was called distinguishing characteristics of ventures in that stage key developmental goals or benchmarks typically accomplished in that stage and the major risks involved sufficient consensus was found on these aspects of the development process for a venture capital model of this process to be constructed the model consists of five sequential stages 1 seed 2 start up 3 second stage 4 third stage and 5 exit stage strong consensus was found on distinguishing characteristics of ventures in early stages of development key developmental goals or benchmarks in various stages and major developmental risks associated with each stage consensus on developmental characteristics diminished somewhat in later stages presumably because of differential rates of development among investees as well as differing degrees of success in accomplishing earlier objectives nevertheless sufficient differences in functional characteristics remained to clearly distinguish later stage investees from early stage investees and to enable differentiations in maturity between third stage and exit stage investees the venture capital developmental model exhibits both similarities and differences from stages of development paradigms first the venture capital model is primarily strategic and market oriented in focus it gives lesser emphasis to the elements of organizational structure management style and management specialization than some stages of development theories although these elements are identified by venture capitalists as potential areas of risk should problems arise second like stages of development paradigms the venture capital model is universal and not venture specific venture capital firms appear to view all potentially feasible business concepts despite differences in product organizational complexity rate of development or ultimate size as passing through the same process sequence albeit at different speeds and with varying degrees of success third the model while reflecting the financial objectives of venture capital investors is primarily shaped by the naturally occurring functional development of investees it does not represent arbitrary requirements imposed on investees to segment the developmental process into steps that would not otherwise occur the development of venture capital investees is influenced by the strategic and financial objectives of venture capital firms thus the model does not necessarily mirror the strategic and dynamic elements of the development process for firms that are not intended by their founders to grow rapidly and then go public or be acquired by a larger corporation or for ventures that must depend upon internally generated funds or bank loans to finance development the venture capital model representing perceptions of 73 venture capital firms derived from longitudinal data for many hundreds of new ventures appears to empirically confirm the concept of an evolutionary progression through key functional and strategic steps which is a central element of most stages of development hypotheses the study did not go into sufficient depth however to provide detail on the influence of factors such as organizational structure and management styles and control systems on development these factors are central elements in several stages of development theories and are arguably of critical importance in the growth survival and financial success of new ventures

extension services product quality and yields the case of grapes in argentina this article studies the impact of publicly subsidized agricultural extension services on yields and product quality we use panel data from grape producers in mendoza argentina to estimate the impacts of farmer trainings we find a negative overall impact on yields and evidence of a positive average impact on the adoption of higher quality grape varieties by analyzing the dynamic pattern of the estimated effects we find evidence of a temporary decrease in yields suggesting the existence of an adjustment process following the introduction of higher quality grapes the overall negative effect on yield is driven by a sharp drop in the year of participation this fades after year one and two to three years after treatment we observe increases in higher quality grape production findings reinforce the importance of temporal dimension of extension services

improving the speed of adoption of agricultural technologies and farm performance through farmer groups evidence from the great lakes region of africa the article examines the effect of membership in farmer groups mfg on adoption lag of agricultural technologies and farm performance in burundi the democratic republic of congo and rwanda we use duration and stochastic production frontier models on farm household data we find that the longer the duration of mfg the shorter the adoption lag and much more so if combined with extension service delivery farmer groups function as an important mechanism for improving farm productivity through reduced technical inefficiency in input use we discuss policy implications under which farmer groups are a useful channel to reduce adoption lag and the means through which improved farm performance can be achieved

measuring technical efficiency in the presence of pesticide spillovers and production uncertainty the case of dutch arable farms pesticides dynamic effects and production uncertainty play an important role in farmers production decisions pesticides have a current production impact through reducing crop damage in the current period and a future impact through impacting the farm biodiversity which alters the future production environment this study presents the difference in inefficiency arising from models that ignore the dynamic effects of pesticides in production decisions and the impact of production uncertainty a dynamic data envelopment analysis dea model is applied to outputs inputs and undesirables of dutch arable farms over the period 2003 2007 a bootstrap approach is used to explain farmers performance providing empirical representations of the impact of stochastic elements on production these empirical representations are used to adjust firms inefficiency scores to incorporate production uncertainty in efficiency evaluation we find that efficiency increased dramatically when a production technology representation that considers both pesticides dynamic impacts and production uncertainty is adopted

productive efficiency of specialty and conventional coffee farmers in costa rica accounting for technological heterogeneity and self selection a steep decline in coffee prices at the producer level led to considerable pressure for farmers in costa rica and producer countries all over the world one possible reaction was moving to specialty markets where price pressure was perceived to be lower we use original survey data from 2002 2003 and 2003 2004 to analyze the factors influencing participation in specialty markets and to estimate separate production functions for specialty and conventional coffee farmers allowing for farm specific inefficiencies applying a sample selection framework we find significant selection bias in the sub sample of specialty farmers and evidence for the overestimation of efficiency if this bias is not adequately controlled for among the most important factors that influence farm specific efficiency levels in the two sub samples are the availability of additional income activities experience in coffee cultivation and membership in cooperatives based on the results we derive policy recommendations to improve farmers production performance and ability to cope with the effects of the coffee crisis these policy measures include the provision of extension services with respect to farm management skills the creation of income opportunities in rural areas and the support of farmer owned cooperatives

the effects of education in early stage agriculture some evidence from china the stochastic production frontier approach is used to study the effects of education on agricultural efficiency for a cross section of early stage farms from guanghan county sichuan province china education for farm families in rural china is multifaceted with a combination of formal education intragenerational transfer of knowledge within the home and agricultural extension services since our survey data span two different years with markedly different policy environments we are able to examine not only which aspects of education affect agricultural efficiency but also whether or not the policy environment matters we find limited evidence that in a policy environment that is conducive to agriculture formal education provides positive returns in agriculture furthermore general education may provide greater returns than the more targeted extension services

angels and non angels are there differences abstract the market for informal venture capital is an elusive and nearly invisible source of financing for entrepreneurial ventures this market consists of a diverse set of high net worth individuals business angels who invest a portion of their assets in high risk high return entrepreneurial ventures the emerging consensus of the characteristics of the individual investor is that of a well educated middle aged individual with considerable business experience and a substantial net worth these informal investors appear to prefer investing in the early start up stage of the venture and if given a choice prefer that their investments be located close to home one consequence of this consensus is the tendency to assume that the traits of these business angels are as tightly clustered around the norm as are the traits of venture capital funds they are not in terms of their competence in the many areas of venture investing these individual investors range from the successful cashed out entrepreneur on the one hand to individuals with little or no experience with venture investing on the other at the same time little is known about the characteristics of high net worth individuals who never ventured where angels dare to tread or about these non angels propensity to join the fold thus this study seeks to fill the void by examining the characteristics of high net worth individuals regardless of their investment history or their interest in venture investing an analysis of the data reveals three groups of high net worth individuals business angels with experience investing in entrepreneurial ventures interested potential investors with no venture investment history but who express a desire to enter the venture investment market and uninterested potential investors who under no circumstances would consider investing in entrepreneurial ventures as part of their investment strategy business angels and potential investors both the interested and non interested segment share similar views about the economic significance of the entrepreneur and the difficulty in securing the equity capital for development of the venture as the issues move from the general to the specific divergence in investment attitudes takes place among the two groups but this divergence is in terms of magnitude or intensity rather than in contrasting or opposing views of the process the potential investor tends to view investing in entrepreneurial ventures on a smaller scale than the active investor especially in terms of the dollar amount committed to any one investment while the business angel is more interested than the potential investor across all stages of financing the interest for both groups increases as the type of financing progresses from the seed stage to expansion financing in contrast the potential investor is more likely to seek diversification as a motivation for venture investing than their angel counterparts the potential investor pool is segmented into those potential investors who appear willing to take on the role of business angels and those individuals who have no desire to participate in the venture market for the interested group to increase their interest in providing venture capital these potential investors want assistance in monitoring the performance of the venture investment followed by assistance in pricing and structuring both of these resources relate more to the technical aspects of venture investing and indicate that these are the areas where the potential investor is least likely to have expertise other resources such as finding and evaluating the investment opportunity appear to represent less of a stimulus for the potential investor in many respects interested potential investors act like business angels across several dimensions both consider the later stages of the development of the venture as the preferred stage to invest the business angel and interested potential investor prefer investments to be located relatively close to their primary residence and share similar views on the amount of the investment portfolio to allocate to venture investing where the interested potential investor and business angel clearly differ is on the scale of the commitment and the motivation for investing the potential investor will commit a smaller dollar amount to any one venture is more inclined to participate with other investors and is more apt to see venture investing as a diversification strategy than is the seasoned business angel

publicly traded venture capital funds implications for institutional fund of funds investors abstract institutional investors supply the bulk of the funds which are used by venture capital investment firms in financing emerging growth companies these investors typically place their funds in a number of venture capital firms thus achieving diversification across a range of investment philosophy geography management industry investment life cycle stage and type of security essentially each institutional investor manages a fund of funds attempting through the principles of portfolio theory to reduce the risk of participating in the venture capital business while retaining the up side potential which was the original source of attraction to the business because most venture capital investment firms are privately held limited partnerships it is very difficult to measure risk adjusted rates of return on these funds on a continuous basis in this paper we use the set of twelve publicly traded venture capital firms as a proxy to develop insight regarding the risk reduction effect of investment in a portfolio of venture capital funds i e a fund of funds measurements of weekly total returns for the shares of these funds are compared with similar returns on a set of comparably sized maximum capital gain mutual funds and the daily return of the s p 500 index a comparison of returns on an individual fund basis as well as a correlation of daily returns of these individual funds were made in order to adjust for any systematic bias resulting from the thin market characteristic of the securities of the firms being observed the scholes williams beta estimation technique was used to reduce the effects of nonsynchronous trading the results indicate that superior returns are realized on such portfolios when compared with portfolios of growth oriented mutual funds and with the s p 500 index this is the case whether the portfolios are equally weighted i e naive or constructed to be mean variant efficient ex ante according to the capital asset pricing model when compared individually more of the venture funds dominated the s p market index than did the mutual funds and by much larger margins when combined in portfolios the venture capital funds demonstrated very low beta coefficients and very low covariance of returns among portfolio components when compared with portfolios of mutual funds to aid in interpreting these results we analyzed the discounts and premia from net asset value on the funds involved and compared them to thompson s findings regarding the contribution of such differences to abnormal returns we found that observed excess returns greatly exceed the level which would be explained by these differences the implications of these results for the practitioner are significant they essentially tell us that while investment in individual venture capital deals is considered to have high risk relative to potential return combinations of deals i e venture capital portfolios were shown to produce superior risk adjusted returns in the market place further these results show that further combining these portfolios into larger portfolios i e funds of funds provides even greater excess returns over the market index thus plausibly explaining the fund of funds approach to venture capital investment taken by many institutional investors while the funds studied are relatively small and are either small business investment companies or business development companies they serve as a useful proxy for the organized venture capital industry despite the fact that the bulk of the funds in the industry are institutionally funded private closely held limited partnerships which do not trade continuously in an open market these results demonstrate to investors the magnitude of the differences in risk adjusted total return between publicly traded venture capital funds and growth oriented mutual funds on an individual fund basis they also demonstrate to investors the power of the fund of funds approach to institutional involvement in the venture capital business because such an approach produces better risk adjusted investment results for the institutional investor it seems to justify a greater flow of capital into the business from more risk averse institutional investment sources this may mean greater access to institutional funds for those seeking to form new venture capital funds for entrepreneurs seeking venture capital funds for their young companies it may also mean a lower potential cost of capital for the financing of business venturing from the viewpoint of public policy makers interested in facilitating the funding of business venturing it may provide insight regarding regulatory issues surrounding taxation and the barriers and incentives which affect venture capital investment

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

economics of paid extension lessons from experience in nicaragua public agricultural extension extension faces major changes and challenges resulting from less available public resources and from changes in demand for extension structural changes in extension provision and financing alternatives have been one type of response to the changes in conditions under which extension operates some new mechanisms all modifications to traditional public extension include private extension commercialized extension and co financed extension will be called hereafter paid extension several experiences of paid extension around the world are reported in the literature see keynan olin and dinar for details most of them provide information on the structure and operation of the different paidextension arrangements and in some cases some anecdotal results on the costs and benefits associated with these operations this article offers in the next section a framework to evaluate economic performance of paid extension and demonstrates its application in the third and fourth sections using two types of paid extension programs in nicaragua the article is concluded with a discussion on policy implications

informal risk capital investors investment patterns on the east coast of the u s a abstract in this study we profile a group of informal investors their investment criteria and the nature of their referral network the study supports the findings of several earlier studies it indicates the existence of an extensive informal investment community on the east coast of the u s a which can provide substantial financial resources to startup and young firms a full 58 of the sample investments were in startups a huge proportion compared with formal venture capital sources the study further supports earlier findings that this group is difficult to locate for entrepreneurs and researchers alike this opaque market consists primarily of friends and business colleagues who individually provide modest sums of money 20 000 50 000 but are often able to use their network to assemble a group of investors who will sponsor the entire funding requirement 130 informal investors report that in three years they and their networks raised 38 million dollars to support 286 new venture proposals there are also encouraging indications that these angels are both enthusiastic and persistent many of them claim that they have achieved higher returns via angel activity than any other investment options that they have tried of the angels who did better with alternative investment options more than 80 are still prepared to make further investments even those who reported failed investments in the informal risk capital market remain supportive over 65 indicate a willingness to invest again the criteria by which the angels screen the proposals differ markedly from those of the venture capital community in particular the angels do not appear to be interested in a thorough business plan a sine qua non for venture capitalists unlike the capital firms angels are not interested in competitive insulation they do not limit their investments to industries that are appealing or with which they are familiar nor do they care very much about the degree to which the entrepreneur has identified competition however they are in close agreement with the venture capital community in their concern with the management ability of the venture team and a requirement that there be a clear demonstrated need for the product or service preferably in a market with large potential the study has shed some light on the structure of the referral networks of angels though we do not know from this study how the respondents themselves first heard of the ventures that were described in this survey we do know that their referral network is composed primarily of friends and business colleagues to whom they refer as much as 60 of the proposals that they receive and in which they themselves eventually invest thus they pass on serious opportunities to their network their referees are inclined to be very supportive in our sample almost 75 of them also invested in the venture the current strategy for informal investors is to approach mainly close contacts these are inclined to be supportive 85 also invested in the venture and to follow a trusting investment behavior pattern relying mainly on the recommendation of the angel this strategem ensures that the total capital requirements are met via the network however given the results of this study the angels might be well advised not to stop here they might also approach at least one professional only a small proportion of professionals were approached by our sample of angels less than 30 as the study shows professionals are more effective at selecting successful ventures thus a mixed strategy may be called for use mainly trusting referees to ensure full capitalization and a limited number of professional referees to screen the proposals this will help ensure that those proposals that do get supported by the more trusting members of the network have been competently screened thus increasing to the probability of venture success a discriminant analysis revealed some useful pointers in helping the informal investor select successful ventures first it is critical to select only ventures in which the entrepeneur can be relied on to evaluate the risks of the ventures and manage these risks well angels do not need entrepreneurs that will gamble with their money equally important is to avoid placing too much credence on highly articulate sales pitches by the venture team or too much reliance on ventures in which the main emphasis is on product and proprietary protection rather insist on being shown clear evidence that the product or service has channel and or market acceptance it is also important for angels to stick to investments where they know the industry well and to back venture teams with a solid reputation and a propensity to get involved in the details rather than gloss them over as in the case of studies of venture capital investments competitive insulation in the early stages of the venture is also important

extension commercialization how much to charge for extension services as public agricultural extension organizations around the world examine the possibility of privatizing or commercializing part or all their services several issues arise in this paper i address the question of how to price the services provided using available data from israel a supply marginal cost function is estimated for the israel extension service and a demand function for extension services is estimated the derived number of visits and the per visit price are calculated several general extension related policy issues that may also be applicable to other countries are discussed

new resources and new ideas private equity for small businesses abstract private equity for rapidly growing small business is raised primarily from the organized venture capital market and the informal market comprised of high net worth individuals or angel investors we discuss commercially and publicly available data on private equity the research findings of studies that use these data and some of the more important questions that the available data have been unable to address