Starting up and Growing New Businesses
Edited by Bart Clarysse, Juan Roure and Tom Schamp
1. Investment in venture capital funds in Europe Simon Barnes and Vanessa Menzies* 1. INTRODUCTION The creation of entrepreneurial new ventures is critically dependent on a plentiful supply of venture capital (VC) ﬁnance within the economy. Entrepreneurs need venture capital ﬁnance to grow their businesses and, likewise, venture capitalists (VCs) need entrepreneurs to generate a return. The delicate mating dance between the two sides of this capital equation has, for many years, been the focus of research into the venture capital industry. Indeed, how VCs select the ventures they back has been mapped in detail to show that there are ﬁve or six sequential steps to any venture capital decision process. These steps include deal origination, screening, evaluation, structuring and postinvestment activities (for example, Tyebjee and Bruno, 1984). A great deal of research has also highlighted the range of selection criteria employed at each stage of the process such as the size of the investment, the technology or product, the industry-sector geographic location and investment stage. As illustrated in Figure 1.1, however, VCs are not the ultimate providers of capital for entrepreneurial ventures; they do not sit at the beginning of the capital supply chain. VCs are, instead, hands-on intermediaries who provide an interface between the providers of capital (the investors in their fund, for example, pension funds, investment trusts, banks or wealthy clients) and the entrepreneurs who utilize such capital to create successful businesses. VCs screen, monitor, advise and assist in investments; they manage information asymmetry and decrease agency...
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