As many studies have shown, venture capital companies pursue value-adding activities for their portfolio firms to achieve abnormal returns compared to the market. Value-adding activities are complex and highly diverse, but also are very relevant to practice. Hence, the topic has been considerably analyzed in academic literature. However, there continues to be a lack of in-depth knowledge because of the sensitivity and scarcity of publicly available data from venture capital companies. We provide in-depth insights into the practices of venture capital companies. Using a longitudinal data-set obtained from nine venture capital companies in Germany, we qualitatively analyzed their value-adding activities. Drawing on iestors’ original documents, including business plans, iestment committee papers, reports and annual statements of the iestments, we created a typology of which value-adding services were performed. Results suggest that, consistent with prior studies, venture capital companies are highly engaged in supporting ventures with respect to financial and human capital issues as well as in establishing strong governance mechanisms to reduce information asymmetries between founders and iestors. Venture capital companies also make moderate use of their network of relevant contacts. Support for operational issues is low._x000D_ Keywords: Venture capital, non-financial value added, non-financial contributions, value creation, new venture
In Kooperation mit führenden deutschen Frühphasenfonds entsteht an der Technischen Universität Dresden und der HHL Leipzig Graduate School of Management eine wissenschaftliche Studie zum strategischen Risikomanagement. Im Rahmen der Studie wollen wir praxisrelevante Erkenntnisse für das Fondsmanagement und für Kapitalnehmer gewinnen.
Managing risk is one of the main activities of venture capital companies. Despite the fact that this topic is of high practical relevance, only little research was published on risk management performed by venture capital companies in their ventures. Hence, we conducted a structured literature review which was the basis for developing five hypotheses concerning measures to decrease failure risk in venture capital-backed ventures. We tested these hypotheses with an empirical data set of 93 venture capital-backed ventures in Germany using original deal data from nine different venture capital funds using a structural equation model. We showed that the experience and the skills of the corresponding iestment manager have a significant negative impact on the failure risk of a venture. Iestment manager´s experience and skills were measured by the working and founding experience, the technology expertise and the network size. Hence, the results emphasize the importance of the selection of the iestment manager for risk management in venture capital iestments.
Reasons for the failure of new technology-based firms: a longitudinal empirical study for Germany
(2015)
We analyzed the determinants for the business failure of German New Technology-Based Firms (NTBF) in different financial stages. This included a literature review and creation of a set of propositions for the determinants within the individual stages. On the basis of an empirical and longitudinal dataset including data of 82 NTBFs, we tested a subset of our assumptions. With this, we could prove that the technology, the market, the financing and the management competencies comprise important factors as identified in previous studies. Further, we proved that the factors differ in each iestment stage as shown by the significance and the connotation of the correlations. The area of technology was not significant in the first iestment stage but in the second. While the determinants proved to be the same in the market area, the connotations of the variables differ in the financial and human resource variables. We showed that the different financial states should be analyzed separately when determining factors of business failure._x000D_ Abstract in German:_x000D_ Insolvenzursachen in jungen High-Tech Unternehmen in Deutschland: eine empirische longitudinale Studie_x000D_ In dem vorliegenden Artikel werden die Insolvenzursachen in jungen High-Tech Unternehmen in Deutschland in verschiedenen Finanzierungsphasen untersucht. Auf Basis einer umfassenden Literaturanalyse werden mögliche Insolvenzursachen für die einzelnen Finanzierungsphasen entwickelt. Mit Hilfe eines longitudinalen Datensatzes von 82 junge High-Tech Unternehmen wurde eine Untermenge dieser Insolvenzursachen empirisch getestet. Dabei konnten frühere Studien in Bezug auf die Technologie, den Markt, die Finanzierung und das Humankapital als wichtige Ursachenbereiche für das Scheitern von High-Tech Unternehmen bestätigt werden. Weiterhin lässt sich anhand der unterschiedlichen Signifikanzen und Vorzeichen der Korrelationen zeigen, dass sich die Insolvenzursachen in den jeweiligen Finanzierungsphasen unterscheiden. Die Variablen im Bereich Technologie sind in der frühen, ersten Finanzierungsphase nicht relevant, wohl aber in der zweiten. Während die marktbezogenen Variablen in allen Finanzierungsphasen übereinstimmen, ändern sich die Vorzeichen in den Bereichen Finanzierung und Humankapital. Die longitudinale Analyse legt offen, dass sich die Insolvenzursachen in den einzelnen Finanzierungsphasen signifikant unterscheiden._x000D_ JEL Classification: L260, M130, G240, G33