Chapter 8: Innovation and Performance Implications of Venture Capital Involvement in the Ventures they Fund
Lowell W. Busenitz Introduction When entrepreneurs choose to take on venture capital funding, the life and dynamics of a venture change substantially. One of the ﬁrst structural changes to occur is the implementation of a board of directors of which the founding team usually plays a minority role (Rosenstein et al., 1993). There tends to be a fair amount of interaction between venture capitalists and entrepreneurs that may allow venture capitalists to intervene in various capacities to build and protect an entrepreneurial venture. Venture capitalists may help the venture make key links to customers and suppliers, monitor venture performance, act as a sounding board as well as assist with strategic issues (Timmons and Bygrave, 1986; MacMillan et al., 1989; Fried and Hisrich, 1995; Manigart et al., 2006). Research has only begun to explore whether venture capital involvement beyond their ﬁnancial involvement adds value to the ventures in which they invest as well as the broader economic development. One impetus for the emergence of the venture capitalist–entrepreneur relationship is that it may enable ﬁrms to create value by the sharing of knowledge, combining or gaining access to critical resources and decreasing the time required for a new venture to market its products. Venture capitalists spend approximately one-half of their time monitoring an average of nine funded ventures (Gorman and Sahlman, 1989). A venture capitalist’s ongoing involvement with the entrepreneurial team and the venture will generally impact on the venture in a variety of ways. Some research has found support for...
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