VENTURE CAPITAL FINANCING: MANAGERIAL FACTORS AND MANAGEMENT CONFLICT IN ICT INDUSTRY JULY 28, 2003

This research examines the factors responsible for the management conflict between venture capital investors (VCIs) and information and communications technology venture businesses (ICTVBs) in the emerging venture capital and ICT industries in Malaysia. In the management process of venture business, VCIs emphasize financial and managerial considerations while ICTVBs emphasize technical considerations. This is the area of management where conflict is most likely to arise between the two key stakeholders of a venture business (VCIs and ICTVBs are categorized as stakeholders in the economics literature). For a successful venture business, this conflict has to be reduced. Before the start-up stage of a venture business, ICTVBs hold the majority equity. However, at the start-up stage, VCIs play a crucial role in providing additional equity. Once an investment by VCIs is agreed upon and executed, that is, the venture business has started its business operation, careful managerial considerations are important; otherwise, the above-mentioned management conflict is likely to arise and affect the performance of the venture business. The increasing complexity of managing venture businesses has made it necessary for stakeholders to develop amicable relationships with each other to achieve mutual goals. As a consequence, researchers and practitioners alike have focused their attention on searching for ways to improve relations between stakeholders. On one side, the ICTVBs need financing, management know-how, and marketing contacts, among others. VCIs are in a good position to assist by channelling not only financing but also their practical hands-on experience in business operations, e.g. general management and marketing. On the other, VCIs need information and technological know-how of their venture business from the ICTVBs so that they are aware of the opportunities and threats of their investment. Therefore, if the two key stakeholders wholeheartedly work together to develop their aggregate competence, their venture business will have a better chance for successful results. The general tenet is that differences do exist in the nature and characteristics of VCIs and ICTVBs, especially their expertise. Thus, a natural move would be to investigate the following. Firstly, what are the specific differences in their expertise? Secondly, do these differences have any impact on their recognition of managerial factors (ROMFs) in managing their venture business? Thirdly, do their ROMFs have any influence on their management conflict? While many past studies have been conducted in developed countries to shed light on issues related to reducing management conflict in venture capital, there is a paucity of empirical studies to investigate the association of ROMFs and management conflict, especially in the ICT industry. In almost all studies, a critical role of VCIs is generating information about the ICTVBs’ prospects. While such an emphasis is important, it does little to shed light on the complementary role of key stakeholders’ ROMFs in affecting those strategies of reducing management conflict. Thus, it is important to understand their managerial factors, whereby the nature of management conflict between these stakeholders is a consequence of their characteristics.