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While the media portrayal of the US entrepreneur is dominated by the young tech-savvy college dropout, the German entrepreneur is often characterised as an experienced engineer with a PhD. But is this really the case? Drawing on qualitative and quantitative data of 90 venture capital-backed new technology-based firms, this paper explores two research questions: How do the backgrounds and competencies of German high-tech founders differ and do these differences affect the success of the venture? Cluster analysis revealed three representative types of German entrepreneurs: the scientist, the practice-oriented technician, and the business professional. Surprisingly, the scientist ranks lowest in social, business and managerial competencies as well as having the lowest success. However, this founder type raises the highest iestments. In contrast, the practice-oriented technician is the most successful. The results of this study offer support to iestors in improving their investment strategy.
Venture Capital is one of the most important sources of financing for young technology-based companies. However, investments in new ventures are classified as high-risk investments due to the high failure rate. Therefore, risk management is one of the core activities of venture capital firms (VCF). Until now, risk management of VCF hasn’t received much attention in literature despite its high practical relevance. In the current study, we analyze how VCF perform risk management and how measures differ in investment phases. 500 original documents of nine different VCF were analyzed. Risk management measures identified includes risk measurement, contracting, risk controlling, risk steering and active involvement. Risk controlling was the one most described in the documents. Further, we identified differences between the systematization and professionalization of different VCF and between different investments within a VCF. Abstract in German: Venture Capital ist eine der bedeutendsten Finanzierungsformen für junge, technologieorientierte Unternehmen. Jedoch sind Investitionen in solche Unternehmen aufgrund der hohen Wahrscheinlichkeit des Scheiterns für Venture Capital Firmen (VCF) mit hohen Risiken verbunden. Das Risikomanagement gehört daher zu den Kernaktivitäten von VCF. Trotz der hohen praktischen Relevanz für VCF wurde das Thema in der Forschung bislang nur wenig betrachtet. In der vorliegenden Studie haben wir daher untersucht, wie VCF Risikomanagement auf der Ebene der Portfoliounternehmen anwenden und inwiefern sich die Maßnahmen in den einzelnen Phasen des Investitionsprozesses unterscheiden. Dazu haben wir 500 Originaldokumente von neun VCF untersucht. Die Bereiche Risikomessung, Vertragsgestaltung, Risikocontrolling, Risikosteuerung und aktive Einflussnahme konnten als Risikomanagementmaßnahmen identifiziert werden. Dem Risikocontrolling kam dabei die größte Bedeutung zu. Es zeigten sich darüber hinaus Unterschiede in der Ausprägung der Systematik und Professionalisierung, sowohl zwischen verschiedenen VCF als auch verschiedenen Investments der einzelnen VCF.
Venture capital is an important resource for new ventures with no access to the capital market. However, venture capital companies' investment decisions could be extremely risky. Assessing and managing risk is therefore a major task of venture capital companies. Despite the topic's high practical relevance, there is very little literature in this field. We aim to extend the academic discussion by investigating the risk types and risk assessment in venture capital investments. We analysed more than 500 deal documents of nine German venture capital companies, resulting in 2,452 qualitative quotes. We categorised these quotes into seven risk types, namely financial, market, strategy, technology, production, human capital, and legal risks, implying their relevance during the VC investment process. Market risk and technology risk are mentioned the most in the due diligence and the decision papers. Financial risk with 710 quotes is the most often documented risk considering all venture capital documents.
Purpose: The purpose of this paper is to analyze specific levers of value creation in small and mid-size private equity deals. Private equity firms add value through various types of value creation measures in their portfolio firms to achieve abnormal returns. Established literature has shown that value creation measures differ across portfolio firms due to the different development stages of the firm and different buy-out types. Despite the fact that the majority of deals belongs to the small and mid-size segment, prior studies mostly analyzed large private equity buy-outs or mixed samples.
Design/methodology/approach: To explore value generation measures in small and mid-size buy-outs, a single case study format was applied studying the carve-out of QUNDIS from Siemens Building Technologie by CAPCELLENCE as an exceptional successfully private equity deal within this segment.
Findings: The analysis shows that operational and governance improvements are common value creation measures in all buy-outs. The results suggest a lower leverage for smaller private equity deals indicating that financial engineering is less important. Furthermore, in small and mid-size deals, the strategic focus is growth contrary to downsizing and refocusing in large buy-outs.
Research limitations/implications: Results of a single case study should be generalized cautiously, as they are perceived as less robust compared to empirical methods or multiple case studies. However, this method is appropriate for explorative studies.
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
Risk and return management is one of the core competencies of venture capital companies (VCCs) as they iest in young, innovative firms with a high return potential, but also high risk potential. Due to the liability of smallness, newness and financial constraints young, innovative firms are constantly under the threat of failure. In the scope of this dissertation are four related studies – three empirical studies and one literature review – analyzing the risk and return management of VCCs. In particular, risk assessment and risk management and value adding activities in the post iestment phase were examined. In the first article, authors analyze which risks are relevant over the whole venture capital (VC) iestment process and show how VCCs assess and documents risks in their deal documents. The second article studies risk management practices of VCCs. We show that the experience and the skills of the corresponding iestment manager have a significantly negative impact on the failure risk of a venture. Article three analyzes value creation measures applied by VCCs. The results suggest that VCCs are highly engaged in supporting ventures in financial and human capital issues as well as in establishing strong governance mechanisms. The fourth article also deals with the foregone topic. This paper provides a literature analysis on value adding activity measures in VC iestments, synthesizes the variables measuring the main levers of value adding and identifies directions for improvement in terms of data, variables and methods.
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.
Value adding activities in the venture capital literature: a review on data, variables and methods
(2016)
Established literature has shown that venture capital funds’ high returns can be partly attributed to value adding activities performed by the venture capital firms in their portfolio firms. Despite of the topic´s importance, to date there is no structured literature review providing possibilities for improvements concerning data and methods. This paper provides a literature analysis on value adding activity measures in venture capital iestments, synthesizes the variables measuring the main levers of value adding and identifies directions for improvement in terms of data, variables and methods. Hence, I studied 37 articles regarding the type of data collection method, methodology, sample region and variables. The analyses showed that data are primarily gathered through databases or surveys which are subject to several limitations. To measure value adding activities great inconsistencies exist regarding the variables used. Therefore, to assure a better comparability of studies in this research stream, this paper calls for other data collection methods and the development of established variables and scales. Keywords: New venture, venture growth, venture capital, value adding, value creation