How Starting Strategy and Network Structure Shape Problemistic Search: An Examination of Venture Capital Firms

Building on the behavioral theory of the firm, we empirically examine how starting strategies and syndication networks can influence venture capital (VC) firms’ problemistic search. We propose that: (a) depending on a VC’s strategic starting point, that is, the VC’s extent of specialization, the directionality of problemistic search may change to either expanding or contracting search activities; and (b) depending on search direction, structural holes in syndication networks can either impede or facilitate the problemistic search process. In a sample of U.S. VC firms, we find results consistent with our predictions, which have important implications for entrepreneurship and organizational strategy research.

Government Financing of R&D: A Mechanism Design Approach

We study how to design an optimal government loan program for risky R&D projects with positive externalities. With adverse selection, the optimal government contract involves a high interest rate but nearly zero cofinancing by the entrepreneur. This contrasts sharply with observed loan schemes. With adverse selection and moral hazard, allowing for two levels of effort by the entrepreneur, the optimal policy consists of a menu of at most two contracts, one with high interest and zero self-financing and a second with a lower interest plus cofinancing. Calibrated simulations assess welfare gains from the optimal policy, observed loan programs, and a direct subsidy to private venture capital firms. The gains vary with the size of the externalities, the cost of public funds, and the effectiveness of the private venture capital industry. (JEL D82, D86, G24, L26, O31, G32, H81)

How Venture Capital Firms Choose Syndication Partners: The Moderating Effects of Institutional Uncertainty and Investment Preference

ABSTRACT This study investigates how venture capital firms (VCs) choose syndication partners. Exponential random graph models of Chinese VC syndication networks from 2006 to 2013 show that the homophily mechanism does not always determine VCs’ partner selection. In selecting partners, VCs have to strike a balance between reducing uncertainty and mobilizing heterogeneous resources. Therefore, decisions about partners depend on institutional uncertainty and VCs’ investment preferences. While VCs that focus on traditional business in an immature market are more likely to form homogeneous syndications, their peers that prefer to invest in innovative companies and that can rely on a stable market tend to syndicate with heterogeneous partners.

Exit strategy decision by venture capital firms in India using fuzzy AHP

Purpose The existing literature on venture capitalists’ (VCs’) exits provides insufficient evidence regarding factors affecting the exit decision. This study aims to identify these factors and examine how VC firms do ranking or prioritize these factors. Design/methodology/approach The study is based on primary data. The qualitative analysis was done to develop the survey instrument. Fuzzy analytical hierarchical process, which is a popular method of multi-criteria decision modeling, is used to identify or rank the determinants of exit strategy by venture capital firms in India. Findings Broadly, eight determinants of exit strategy are ranked by VCs. A total of 33 statements describe these eight determinants. The results are analyzed on the basis of four measures of VCs’ profile, i.e. age of VC firm, number of start-ups in portfolios, type of investment and amount of investment. Research limitations/implications The survey instrument needs to be validated with a larger sample size and other financial backers than VCs. Practical implications The study has direct managerial implication for VC firms as it provides useful information regarding the determinants of exit strategy by VC firms in India. These findings can provide necessary information to other financial backers too, viz., angel investors, banks, non-banking financial institutions and other individual and syndicated set-ups providing funding to start-ups. Originality/value The current research is unique as no prior study has explored the determinants of VCs exit strategy and prioritizing these determinants.

Assets need audiences: How venture capitalists boost valuations by recruiting investors to asset circles

Narratives and conventions have received considerable attention in recent discussions of the valuation of financial assets. Narratives and conventions, however, can only be effective to the extent that they attract and persuade audiences, and this article makes the case for paying more attention to those audiences. In particular, the article argues that financial assets can only be established as assets if there is a group of potential investors that has been persuaded to accept them as such: to take them seriously as potential investments. The article coins the term asset circles to refer to such groups and supports the argument with a discussion of venture capital and its role in the production of unicorns: private companies with extraordinary valuations. Venture capital firms may be thought of as value entrepreneurs, and much of the venture capital process is oriented towards constructing both value narratives for the companies they invest in and asset circles prepared to accept those value narratives. Their aim in these processes is a profitable exit, in which the venture capital firm converts its investment back into cash at a considerable profit through either an acquisition or a flotation.

Value-added Activities of Venture Capitals in Entrepreneurial Finance: Evidence from the Growth of Flipkart

Entrepreneurial finance varies as per the startup stage, such as bootstrapping, crowdfunding, angel investors, venture capital (VC), banks and initial public offer (IPO). Many times, entrepreneurial finance comes with knowledge, experience, innovation, value, etc., in addition to the fund brought in. Venture capitals are the most common such contributors. This study illustrates some significant value-added activities by venture capital firms operating in India. It explores some evidence from venture capitals such as Tiger Global, Accel Partners and DST Global who fund Flipkart, an Indian e-commerce firm.

The State-Preneurship Model of Digital Journalism Innovation: Cases from China

Digital innovation has been widely considered as a key solution to the current journalism crisis. While most innovation projects in democratic regimes receive funding from media organizations, venture capital firms, and foundations, many of China’s digital journalism projects are funded and led by the state—a model we define as “state-preneurship.” In this study, we compare this model with other digital innovation models on three dimensions: the amount and sustainability of funding, the extent of newsroom restructuring, and the transformation of journalistic culture. We focus on the early national success case, Shanghai-based news outlet Pengpai, as well as on eight of its regional copycats. Based on interviews with forty-three executives, journalists, propaganda officials, media investors, and scholars, we argue that while in the short run, state-preneurship has produced fast and large-scale transformations in the digital journalism industry, these changes appear as largely unsustainable in the long run. This is due to (1) the political contingency of state investments and (2) the limited transformation in journalistic culture.

The dynamics of organizational reputation and status: momentum and volatility

PurposeOrganizational reputation and status are similar yet distinct constructs, serving as signals conveying information about an organization and its products and thus constituting audiences' perceptions about the organization. However, compared to status, reputation tends to change more dynamically over time. In this study, the authors argue that the dynamic traits of reputation – particularly, its momentum and volatility – may serve as additional signals and/or noises, influencing potential exchange partners' perception about the organization and thereby determining its status.Design/methodology/approachThe authors test our hypotheses in the context of the US venture capital firms between 1990 and 2010. The authors collected 8,793 firm-year observations of 1,186 VC firms and used the Arellano–Bover/Blundell–Bond dynamic panel estimation method to estimate their model.FindingsThe authors’ findings show that reputation momentum has a positive effect on status, whereas reputation volatility does not have a significant direct effect. However, the authors found that volatility has indirect effects on status, serving as a noise weakening the signaling effects of reputation and its momentum.Originality/valueThis paper contributes to the literature on organizational reputation and status by suggesting the importance of considering the dynamic traits of organizational reputation, which are indeed the crucial factors that distinguish reputation from status. Also, this study provides managerial implications for the organizations that aim to enhance their status through managing their reputation.