Venture Capital a Catalyst for Start-Ups to Overcome the “Valley of Death”: Lithuanian Case

Abstract

Research so far have indicated that start-ups in early stage of development encounter with the financial gap which limits companies’ ability both to innovate and to commercialise its products (valley of death) (Hudson & Khazragui, 2013). Moreover limited human capital, high uncertainty in terms of product and market, volatile development process, weak partnership ties are the utmost impediments for successful start-ups development (Fielden, Davidson and Makin, 2000). It has been finalised that venture capitalists are valuable contributors in both filling the financial gap (1), and providing value added services (2) like financial, technological, managerial support, and contacts (Hellmann, Puri 2002; Dubocage, Rivaud-Danset & Redi, 2012; Caselli et al., 2009, Bertoni and Tykvova, 2012). Still the research on venture capital role on the start-ups performance is fragmented the impact on the companies’ performance indicators is revealed in some extent (Peneder, 2010). Having all mentioned the scientific problem emerges: what is the role of venture capital in start-ups development specifically on the performance indicators (turnover, number of employees). Purpose of study is to explore the role of venture capital funds as a catalyst for start-ups to overcome the “valley of death” especially focusing on the value added provision in terms of financial and innovation perspectives. Research is carried out by combining qualitative and quantitative research techniques including analysis and synthesis of the scientific literature, case studies and statistical data as well. The literature research has identified the characteristics of venture capital financing, specifically there are evidences that venture capital funds trigger the growth of company, product development, inspire entrepreneurship and thus enhancing the competitiveness of start-ups. Regarding the analysis of venture capital backed companies’ cases in Lithuania it has been revealed that investments were made not only in start-ups, but for mature companies as well and covered various sectors, not solely high-tech, but also including energy, food, and textile sectors.