Table of Contents

Entrepreneurship and the Financial Community

Entrepreneurship and the Financial Community

Starting up and Growing New Businesses

Edited by Bart Clarysse, Juan Roure and Tom Schamp

This highly accessible book brings together the insights of leading academics and researchers to promote a better understanding of the role of private equity providers in the development of growth-oriented start-ups and the management of growth processes.

Chapter 9: Venture Capitalists’ Communication and Commitment: A Practitioner’s Perspective

Dirk De Clercq and Vance H. Fried

Subjects: business and management, entrepreneurship

Extract

Dirk De Clercq and Vance H. Fried 1. INTRODUCTION This chapter focuses on how venture capital firms (VCFs) can more effectively add value to their portfolio companies (PFCs) through (i) their communication both with the PFC and internally within the VCF and (ii) their commitment to the PFC. To the entrepreneur, VCF value added can be crucial to the success of his or her company (that is, the PFC). To the VCF, quality PFC investments are important to enjoy high returns. Although they are not the only driver of PFC performance, VCFs can often significantly enhance PFC performance by fulfilling a variety of ‘valueadding’ roles for the PFC. In fact, most VCFs spend more time providing these value-adding services to PFCs than they do evaluating new investment opportunities (Sahlman, 1990). Prior research has identified several major value-adding roles for the VCF. For instance, venture capitalists play a strategic role as sounding boards for and generators of strategic initiatives, an operational role as providers of key external contacts for locating managerial recruits, professional service providers, or key customers, a personal role as friends, mentors and confidants, and a disciplinary role as directors who hold management responsible for meeting objectives and discharge management for nonperformance (Sapienza et al., 1994; Fried and Hisrich, 1995). In this chapter, we examine the determinants of the successful execution of these roles. Value added is the result of three things. First, the quality of the valueadding activities is crucial. For instance, is...

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