Venture Capital Research: A Review and Prospects

Abstract

Since the establishment of the first venture capital firm in mid-1980s, China’s venture capital industry has experienced a rapid growth, and is playing an increasingly important role in the innovation, entrepreneurship and economic development of China. By the end of 2012, China has become the second largest market for VC investments. Despite of a boom in venture capital in China during recent years, the understanding of this industry remains fragmented, without a clear understanding of how it differs from that in mature economies.This paper aims to provide a comprehensive literature review of venture capital research all across the world by identifying the following three important research steams: （1） venture capital and macro economy, which focuses on the interaction between venture capital and the macro environment, and how they shape each other; （2） venture capital firms and new ventures, which covers the whole process of venture capital investment decisions, including the selection of investees, post-investment management, exit strategies, performance implications, etc.; （3） venture capital firms themselves, which discusses how the characteristics of venture capital firms and their networks influence venture capital investment decisions and outcomes. Based on the broad review of extant research and a comparison between Chinese and Western contexts, we make several prospects for future research. First, we suggest a better understanding of venture capital firms’ activities embedded in the institutional environment of emerging economies such as China. Second, the complicated relationship between venture capital firms and new ventures is a promising but under-explored research topic, as the interaction between investors and entrepreneurs plays an important part in new ventures’ growth. Third, we call for more research attention to the influence of venture capitalists’ personal networks on venture capital firms’ decisions, as well as the interplay between interpersonal and interfirm networks in China’s venture capital industry.