20 - Does the value of venture capital vary over the investee life cycle? Evidence from Irish investees

Abstract

This chapter investigates investee perceptions on the nature and quality of venture capital (VC) involvement in Ireland. It examines whether investees report different VC activities depending on the stage in their life cycle. To examine investee perceptions on the nature and quality of VC, a postal questionnaire was sent out to 199 owners/CFOs of Irish companies that received VC during the period 1996–1999, which resulted in a sample of 59 investee companies. The results show that venture capitalists use a combination of board representation, face-to-face communication, and telephone calls to interact with investees. They most often contact each other six to ten times per annum and communicate for three to four hours on average, where meetings are largely spent discussing cash flow, strategy, and market issues. Overall, the venture capitalists are highly valued by Irish investees, especially for their funding and managerial support. The results also demonstrate that early-stage recipients of VC on average perceive more and different benefits from VC involvement compared with later-stage investees. Early-stage firms' perceived benefits of VC are largely confined to the provision of additional equity and monitoring of financial performance. Later-stage recipients also consider venture capitalists to be effective monitors, but additionally they see a role for the VC as a sounding board and mentor, its help in forming/managing the board and implementing strategy. The investees deem the contribution of venture capitalists to performance as significantly larger when VC firms are effectively involved in raising additional equity, helping form and manage the board, improving strategy implementation, and acting as a confident/mentor.