Portfolio Company Performance Research Articles

Venture Capitalists’ Managerial Involvement in Entrepreneurships: Is Too Much of a Good Thing Bad?

Venture capitalists are investors that provide valuable hand-holding for the companies in which they invest. A venture capitalist chooses the level of involvement with his portfolio companies. Involvement spans from a very relaxed, limited communication ‘laisse faire’ approach to a very involved, almost stifling, ‘hands on’ approach. If venture capitalist involvement is valuable, is more involvement better, or is too much of a good thing bad? The answer to this question lies in the nature of the relationship between venture capitalist managerial involvement and portfolio company performance; specifically, whether it is linear or nonlinear. Using data from Thomson Reuters VentureXpert, I find that there exists a nonlinear relationship between the level of VC involvement for both PC performance and outcome. Results suggest that extreme levels of VC involvement should be avoided.

When Do Venture Capital Firms Learn from Their Portfolio Companies?

In this study, we examine when venture capital firms (VCFs) learn from their portfolio companies (PFCs). Relying primarily on learning and behavioral theories, we develop hypotheses regarding the effects of prior experience, knowledge overlap, trust, and PFC performance on learning by VCFs. We use a combination of primary and secondary data from 298 U.S.–based VCFs to test the hypotheses. Interview data are used to illuminate the results and to guide our discussion of implications. Many of our results were surprising. For example, we found that the VCF's overall experience is negatively related to VCF learning, and we found that trust in VCF–PFC dyads is also negatively associated with VCF learning. Whereas we expected to observe a curvilinear relationship between knowledge overlap and learning, we found that lower levels of knowledge overlap were associated with greater learning in a linear fashion. Finally, we found that VCFs perceive greater learning to occur in higher–performing PFCs. We discuss the limitations and implications of our findings and also suggest avenues for future research.

Effects of relational capital and commitment on venture capitalists' perception of portfolio company performance

In this study, we examine how relational capital and commitment affect a venture capital firm's (i.e., VCFs) perception of the performance of its portfolio companies (i.e., PFCs). That is, we examine how perceived performance is affected by the social nature of the relationship between the VCF and PFC. The study's hypotheses are tested by applying quantitative analyses to survey data collected from 298 U.S.-based venture capital firms. The data from the survey are complemented with additional information drawn from secondary data sources and interviews with several venture capitalists. We found that the amount of relational capital embedded in the VCF–PFC dyad and the extent to which the VCF is committed to the PFC are strongly related to perceived performance. We speculate that relational capital and commitment enhance learning, an effect that increases VCFs' perceptions of performance. Further, these perceptions of performance will also be amplified by the positive affect generated by relational capital and commitment. We discuss the limitations and contributions of our findings and provide directions for future research.

German Venture-Capital Firms and Portfolio-Company Performance: What Types of Management Support Make a Difference?

The article discusses how involved venture-capital firms (VCFs) in Germany should be with companies in their investment portfolios (PC). The author recommends that VCFs offer at least some level of non-monetary support to portfolio-company managers, such as serving on their board of directors or providing financial advice on business policy decisions. A VCF's level of involvement can have great impact on their PC's overall performance. It is possible for VCFs to have a level of control and directional power exceeding their minority stakeholder position. A VCF's investment may also impact management support in the German venture-capital industry based on its legal structure. The rate of growth in external environment is noted as a critical driver of management support by VCFs.

Tests of Alternative Theories of Firm Growth

This study examines the relationships among firm growth, firm size, and firm age for a sample of manufacturing firms between 1976 and 1982. Firm growth is found to decrease with firm age and firm size. These findings are robust to alternative assumptions concerning the effects of sample censoring and the functional form of the growth relationship. The inverse growth-age relationship is consistent with a theory of firm learning proposed by Boyan Jovanovic while the inverse growth-size relationship is inconsistent with a number of theories that assume or imply Gibrat's law. Copyright 1987 by University of Chicago Press.