Venture Boards Research Articles

Principal-to-Principal Conflict Management on Venture Boards

Principal-to-Principal Conflict Management on Venture Boards

Do Boards in New Ventures Monitor Management: The Impact of New Venture Boards on CEO Pay

Do Boards in New Ventures Monitor Management: The Impact of New Venture Boards on CEO Pay

Venture Board Formation: The Role of Founder Organizational Identification

Venture Board Formation: The Role of Founder Organizational Identification

Antecedents of Independent Directors on Joint Venture Boards

The presence of independent directors on corporate boards is often seen as an important means of monitoring to address principal-agent problems and of providing external resources and advice to management. In joint ventures (JVs), however, shareholder-management frictions can be lessened by appointing insiders to management and board positions, whereas access to valuable expertise, resources, and networks are provided by the partners themselves. A natural question, then, is why and when do partners appoint independent directors to JV boards? We argue that the appointment of independent directors to joint venture boards is primarily driven by principal-principal conflict considerations, which are unique in the joint venture context compared with conventional widely held corporations. Consistent with this argument, we find that the likelihood of appointing independent directors increases when JVs face more exchange hazards due to the competitive overlap between partners and the broader functional scope of the JV. However, given that JVs also have alternative governance mechanisms to mitigate shareholder conflicts, we also find that more complex contractual agreements can potentially substitute for independent directors on JV boards. Although relational governance is often highlighted as a key facet of JV governance, we do not find such a substitution effect for this supporting governance mechanism. Overall, our research therefore highlights several interesting domain translation issues when applying existing corporate governance insights to the joint venture setting. Our paper concludes with a call for future research on independent directors serving on JV boards, as JVs represent an organizational form that has been neglected in corporate governance research.

How Women Use Network Strategies to Break Male Elite Cliques and to be Elected on Venture Boards

Based upon a qualitative study of 120 interviews and a statistical analysis of women active in the board scene around VC-backed ventures, we contrast previous claims and the agenda of network programs by and for women who highlight fighting network disadvantages by homophily. By forming cliques with other women, minority disadvantages persist, and these networks are losing rather than gaining efficiency. We outline how women networking with males, and how alternative networking styles break network cliques of men that act as barriers to women. Such networking strategies also contribute to progressive change in the total network reducing stereotypes that are restricting women entrepreneurs.

Venture capital exit pressure and venture exit: A board perspective

AbstractResearch SummaryVenture capital funds have a limited lifecycle. As the fund ages, venture capitalists (VCs) are motivated to promote venture exit discussions with the venture board. We investigate the impact of VCs' exit pressure on the hazard of four types of venture exit (IPO, high‐value M&A, low‐value M&A, and liquidation), considering how VCs' exit pressure influences board collaboration. We find that while the VCs' exit pressure does not affect the hazard of IPOs, the pressure significantly increases the hazard of M&A and liquidation. Achieving important milestones does not reduce the impact of exit pressure on the hazard of low‐value M&A and liquidation. Independent directors moderate the impact of the VC's exit pressure, increasing the hazard of high‐value M&A and lessening the hazard of liquidation.Managerial SummaryWe investigate whether VCs' exit pressure due to an approaching deadline for fund liquidation influences the time to venture exit and how board composition affects the relationship between VCs' exit pressure and venture exit. Data from a sample of 219 VC‐backed U.S. surgical device ventures founded during 1989–2014 suggest that VCs' exit pressure decreases the time to M&A (both high‐value and low‐value M&A) and liquidation. Boards with more independent directors facilitate high‐value M&A and delay liquidation. VCs' exit pressure does not affect the time to IPO. These results provide evidence of the impact of the venture capital fund's finite life on investees other than the VCs and confirm the crucial role of independent directors in managing VCs' exit pressure.

Two heads are safer than one: Changes in CEO duality and venture failure

We study the dynamics of a major design choice in the governance of ventures: whether to distribute power at the top of the venture between a separate CEO and board chair. We propose that ventures are more likely to combine (separate) their CEO and chair positions when operational performance is poor (strong), demonstrating behavior in line with the threat rigidity thesis. Paradoxically, however, ventures would most benefit from a separate CEO and board chair when operational performance is poor. Empirical analysis of data from the Australian mining industry offers general support for our theory, with some interesting nuances. We discuss the implications of our findings for emerging conversations in the literatures on venture boards, boards of directors, and entrepreneurship.

Venture Capital Time Bombs and New Ventures: Do Boards Limit the Damage?

Venture capital funds have a limited lifecycle, which requires venture capitalists (VCs) to liquidate investments and return capital by the end of the fund. VCs shift attention from growing to exiting ventures as funds age. When valuable exits appear less likely, VCs facing exit pressure may pursue low-value M&As or liquidations. This pursuit could hurt the interest of those ventures that can continuously operate. Venture boards play a crucial role in exit decisions, so it is unclear if a VC’s exit pressure has a material impact on venture exit, and if board composition can limit the impact of the VC’s exit pressure. Building on resource dependence theory, we predict and show that VCs’ exit pressure increases the likelihood of low-value M&As and liquidations. We also find that the presence of non-CEO founders and CVCs on the board exacerbates the impact of VCs’ strong exit pressure, thus increasing the likelihood of low-value M&As and liquidations, while a higher proportion of independent directors alleviates the effect of VCs’ strong exit pressure on ventures. The results suggest inviting VCs onto board solves resource dependence in the short-term but has future concerns, and board composition influences the interdependent relationship between ventures and VCs.

Kicking Off the Corporate Governance Lifecycle: Seed Funding, Venture Capital and the Nascent Board

AbstractStudying the creation of venture boards in a hand‐collected sample of 296 VC investment rounds in 132 German high‐tech ventures, we find that risk exposure and investor syndication are strong predictors of whether a formal board is created or not. Our setup allows to study the creation of the nascent board in a legal context where its existence is voluntary and at the same time imposes a strong cost on its members through personal liability. We find that the probability of board creation strongly increases with the amount invested and with conflicting interests among multiple investors. The need for a formalized corporate governance in form of a board is most amplified in seed rounds with three or more syndicating investors, in follow‐on rounds with the entrance of any additional institutional investor, and in the presence of pre‐planned exit. Hence, a venture board is most required when the stakes are high and when the divergence of interests among principals is amplified.

Dispersion of Entrepreneurs’ Power and Venture Performance After Initial VC Investment

Previous research has debated the consequences of venture capital (VC) entry into ventures. Building on the power literature, this study uses a two-stage model that, first, develops and tests how initial VC investment reduces entrepreneurs’ power structures in new venture boards, and, second, explores how such power dispersion affects venture performance through the mediating role of financial slack resources. We develop the argument that financial slack is the core element indicating how entrepreneurs’ resource discretion changes in VC-funded firms. Our results show that initial VC investment decreases entrepreneurs’ discretion and their power over financial slack resources, which in turn has a negative effect on performance. Our analysis informs our understanding of how venture capitalists introduce governance mechanisms and how these mechanisms can have deleterious effects on venture performance. We discuss our contributions to the larger theoretical discussions about the effects of changing entrepreneurs’ structural power and the determinantal implications of venture capitalists’ standard governance mechanisms on venture performance.

National culture diversity in new venture boards: The role of founders' relational demography

Abstract Research SummaryThis study explains the conditions under which new venture boards are less or more culturally diverse in terms of their directors' country of birth. Longitudinal data on 5,515 Swedish ventures suggest that most directors are recruited from founders' proximate social settings—neighborhoods in which they reside and past workplaces—and that diversity levels in these social settings strongly predict the national culture diversity in venture boards. Given the rapid internationalization of workplaces and regions around the world, this paper provides important clues regarding how culturally diverse upper echelons are being incorporated into the organizational design of new ventures. Managerial SummaryMost New Venture Boards exhibit limited diversity in terms of their directors' country of birth, as they are drawn from the venture founders' network. Yet, some new venture boards are indeed born diverse. Our study reveals that founders with prior exposure to culturally diverse workplaces and residential neighborhoods are much more likely to design a culturally diverse board at founding. Given the rapid internationalization of workplaces and regions in most countries around the world, our paper provides important clues regarding how national culture diversity in top management emerges and is being incorporated into the organizational design of new ventures.

Venture Capital and the Effects of Gender Diversity in New Venture Board Interlocks

The venture capital (VC) setting has long been questioned for its discrimination and tendency to promote men before women. Do those who go against the dominant behavior and take women on new venture boards face costs that could be avoided otherwise? To investigate this issue, we draw on social categorization theory and use a population of VC-financed new ventures. Our study confirms that adding women to new venture boards decreases new venture performance due to discrimination associated with women’s board engagement in board interlock networks. Moreover, while the ability to bridge structural holes in interlock networks has benefits, such as power and control over in-group resources, we argue and show that becoming too central in an interlock network has negative effects on performance due to redundancies and cognitive lock-ins. In extending our theory development to the interaction effect of these two negative effects, we propose there is hope for women who are active in the VC scene. We show that increasing gender diversity within focal boards helps overcome the downsides of high interlock network centrality. We discuss implications for board gender diversity, social categorization theory, and board interlock networks.

Directors Turnover in New Venture Boards

Directors Turnover in New Venture Boards

Venture Boards: Past Insights, Future Directions, and Transition to Public Firm Boards

Research summary Venture boards are theoretically important and economically relevant. They are at the apex of a venture's organizational hierarchy and have significant influence on the most important decisions related to venture strategy and personnel. This article reviews the organizational and strategy research on venture boards, clarifying how venture boards differ from venture investors and from public firm boards. It lays out a systematic research agenda to stimulate more research on venture governance, including venture board composition and structure, venture board processes, and venture board transitions to public firm boards. This agenda attempts to illuminate the research opportunities related to the distinctive nature of venture boards and enable theoretical engagement with the broader corporate governance scholarship on public firms. Managerial summary A venture's board of directors is highly consequential for its most important strategic and personnel outcomes. Uber and Theranos are just two recent ventures whose boards have come under public spotlight. This article reviews organizational and strategy research on venture boards, mapping the evolution of the academic literature, summarizing key findings, and identifying the most important limitations. It explains how venture boards are different from venture investors and from public firm boards. Importantly, it lays out a systematic research agenda that draws upon the distinctive nature of venture boards and also creates a bridge to the broader literature on public firm boards. New insights on venture board composition, structure, process, and transition to public firm boards will be relevant to venture executives, investors, and directors. Copyright © 2017 Strategic Management Society.

The Erosion of Path Dependence and Signaling Value of Prior Experience in New Ventures

This paper explores the intersection of path dependent and life cycle views of new venture founding teams and early boards of directors. First, I explore whether there is path dependence between fo...

Diversity in New Venture Boards

We investigate to what extent new ventures boards reflect founders’ own characteristics and backgrounds. Drawing upon homophily principles of recruitment and research on exposure to workforce diver...

Venture Boards: The Impact of CVC-Directors on Venture Innovation

Using hand-collected longitudinal data on venture boards, we examine their impact on new venture innovation in the medical device industry. Putting the spotlight on CVC-directors, we find a higher ...

The Legalization of Operational Permit in Continuing Ash-Shididiqiyyah Care Institution on Neglected Children Social Welfare Service

The research is to dicusses the operational permit legalization of Ash-Shiddiqiyyah Care Institution to describe the operational permit legalization as responsibility in giving social service to neglected children. The informants in this research are chosen purposively, namely the managements of social welfare institution Ash-Shiddiqiyyah who give service to neglected children, apparatus of Social Agency of Yogyakarta Special Territory, apparatus of Investation and Joint Venture Board, and permanent and non-permanent donateurs. Data are gathered through indepth interview, observation, and documentary analysis. Data are analyzed through quantitative-descriptive technique to describe the process of operational permit legalization of the institutional care. The result shows that Ash-Shiddiqiyyah care institution as social welfare institution in handling the activities have got operational permit from legal institution. The operational permit indicates that the existence of institutional care is legal. It means that all things related to operational activities can be accounted publicily so that it gets accreditation by donateurs to participate. It is recommended to the local government, Investment and Joint Venture Board of Yogyakarta Special Territory and social welfare institution to keep overseeing and supervising so that the institution always gives service to people with social problem accountably and responsibly.

The role and contribution of networks in M&A of innovative ventures: can lessons learned from networks of Israeli start-ups be applied by China?

Networks’ impact on business outcome is documented in various theories. We examined the role of specific actors in the networks of successful Israeli technology ventures and identified the actor's contribution during early, advanced, and merger and acquisition (M&A) stages. A mixed qualitative–quantitative method was applied to collect insight and data from 185 founder-entrepreneurs who exited via M&A. A name generator-interpreter technique was used to obtain details on the role and contribution of 768 actors. Our findings pointed to the influential role of actors such as Venture Capitalists , angels, board members, and multinational firms, as well as the vital contribution of foreign actors, during M&A transactions. We further draw implications to illustrate that, if applied, lessons learned from sell-side acquired ventures can benefit Chinese companies in their quest to acquire innovation via M&A. We suggest that the understanding of networks practiced by acquired ventures can increase buyers’ accessibility and visibility to target opportunities and improve M&A outcomes.

Director Exit: The Prestige-Power Gap in Newly Public Ventures

We examine intra-board social hierarchies as the drivers of director exits from venture boards in the early years after the initial public offering (IPO). Building on the observation that directors...