Venture Capital Funds Research Articles

Venture Capital and Growth of Small and Medium- Sized Enterprises in Kiambu County, Kenya

Purpose: The goal of the study was to look into the impact of Venture Capital financing on the growth of SMEs in Kenya's Kiambu County. The specific objectives included to assess the influence of Venture Capital financial support, Venture Capital managerial support, Venture Capital technical support and attracting other sources of Venture Capital financing on growth of SMEs in Kiambu County.
 Methodology: To achieve the goals, the study used a descriptive research approach. The target demographic included all 889SMEs in Kiambu County that are listed in the Kiambu Business Directory-(2021). The study used questionnaires and secondary data sheet as the data collection tools. The data collected was coded, quantified, processed and synthesized quantitatively and qualitatively.
 Findings: The study found that financial support, managerial support, technical support and Venture Capital monitoring affects the growth of SMEs in Kiambu County. The study found that in overall Venture Capital affects the growth of SMEs in Kiambu County to a great extent. The study concludes that financial support offers essential paths for increasing the pool of trained labor, increasing the output of goods and services, creating jobs and providing opportunity to develop entrepreneurial and management abilities. Through Venture Capital managerial support, creative skills, research skills, and strategic technologies are provided which are positively associated with firm growth. Venture Capital monitoring frameworks are responsible for observation of business operations, standard of measurements are crucial in preventing business failures, and vibrant transparency and accountability measures are important in directing enterprises development endeavors. From the inferential analysis, an increase in the Venture Capital financing aspects leads to growth of SMEs in Kiambu County.
 Unique Contribution to theory, practice and policy: The study recommends the SMEs in the County to partner with Venture Capitalists to benefit from financial support for greater successes. Venture Capital firms and SMEs to work together to form a friendly relationship through multi-party cooperation which will pave way for monitoring of the inputs and outputs of the Venture Capital.

Patterns of investment in agricultural research and innovation for the Global South, with a focus on sustainable agricultural intensification

This study is the first attempt to determine global investment patterns for research and innovation in agriculture systems for the Global South, and specifically for innovation funding targeted at sustainable agricultural intensification. We analyzed and modeled patterns of funding from governments in the Global South, development partners, private companies, and private equity and venture capital funds, using primary and secondary sources of data spanning 2010 to 2019. We ascertain the key providers and recipients of innovation funding and how it is shared out between different topics and value chains. Results showed that about $60 billion of funding (ranging from $50 to $70 billion) goes toward agricultural innovation for the Global South each year, with 60–70% of it coming from these countries' own governments (and the government of China accounting for as much as all others combined). This $60 billion investment represents just 4.5% of Global South agricultural output. Furthermore, <7% of the total funding was found to have detectable environmental intentions, and less than 5% had both social and environmental intentions. Adopting a standard for transparent reporting and measurement could potentially lead to swift changes in funding patterns toward sustainability goals.

Pioneering excellence or fleeing mediocracy? Why venture capital firms internationalize

AbstractResearch SummaryTheories and empirical evidence on the competitive motives for VC internationalization are unclear and contradictory. In our study, we adopt a performance feedback perspective to explain VC firms' motives to venture abroad. We leverage unique peer‐performance data on 295 VC funds and 2954 VC investments and find support for our hypotheses that performance below (a) peer, (b) historical, or (c) market aspiration levels drives VCs exodus to (a) foreign and (b) more distant markets. Our study complements theories on internationalization with an organization ecology perspective that acknowledges internationalization as an attempt at adaptation triggered by poor performance.Managerial SummaryVenture capitalists (VC) are not just owners, but take an active role in shaping their portfolio companies' strategies. This causes them to favor investments in their geographic and psychic proximity to allow hands‐on business development. Nevertheless, the share of cross‐border investments by VCs has risen steadily in past years. Our research shows that this internationalization is not solely driven by pioneering and successful VCs but oftentimes by VCs struggling to achieve performance levels. This notion of internationalization by the weakest has important firm‐level consequences.

POLA KEMITRAAN ANTARA PERUSAHAAN MODAL VENTURA DENGAN USAHA MIKRO KECIL DAN MENENGAH UNTUK MENINGKATKAN DAYA SAING USAHA

The government's efforts to overcome the difficulties of micro, small and medium enterprises (MSMEs) regarding funding have collided with collateral problems (the banking sector), namely with financing institutions. Financing institutions are believed to be one way to overcome the problems of companies that do not have sufficient assets as collateral for the proposed bank loans. One of the financing institutions that are friends of small entrepreneurs is venture capital or Venture Capital. In general, venture capital financing does not look at collateral belonging to the Business Partner Company. Therefore, Venture Capital Companies are also called long-term investments with the main objective and as compensation for the high risk of the investment is the acquisition of profit, not interest or dividend income

Firm selection for government venture capital funding to youth tech-based startups

PurposeThe purpose of the study is to review and understand firm selection mechanism involved in government venture capital (GVC) funding and identify key factors influencing selection of tech-based firms for GVC funding.Design/methodology/approachThis paper is based on real-time methodology. The data was generated from interviews of 60 young applicants, who applied for startup funding, and analyzed using statistical techniques to draw the results.FindingsThis review identifies financial viability, market viability and technological innovation to have the strongest predictive ability in firm selection process of the GVC funding program for tech-based youth-owned startups in the first round of interview. This review also highlighted that social impact is not a statistically significant variable in firm selection process in GVC funding.Originality/valueThis study tests the validity of the theory of GVC based on quantitative analysis of field data and identifies key factors with strong predictive abilities for GVC funding, more particularly for the youth-owned tech-based startups. This study brings to light the mechanism adopted for GVC funding and addresses gaps in the literature relevant to firm selection mechanism in GVC programs. This study would help GVC Fund Managers to review their own GVC programs in terms of selection mechanism and help them in appropriate designing of such programs.

The impact of funding on market valuation in technology start-up firms: Implication for open innovation

Do outside funds and increased access to capital have an effect on the market valuation of technology startup firms? Should entrepreneurs prioritize outside funding to increase the values of their firms? This research seeks to answer these important questions. Given the current lack of empirical-based assessment on this topic, a causal impact analysis was conducted to draw conclusions regarding the effect of different investment types and funding amounts on market valuation. Using the Crunchbase data platform, we conducted a study of 7481 early-stage technology startups in the United Arab Emirates (UAE) from 2000 to August 2022. To ensure an accurate and reliable evaluation of the impact of funding on market valuation in technology startups, we employed the Ordinary Least Squares (OLS) and various causal inference methods such as Shapley values analysis, Average Treatment Effect (ATE), and Conditional Average Treatment Effect (CATE). The findings suggest that there is a U-shaped relationship between the amount of capital raised and post-money valuation, indicating that while capital funding has an overall positive effect on market valuation, raising too much capital has a negative impact. Furthermore, we found evidence that private equity, Series B, and Series C rounds generate significant market valuation for early-stage technology companies. These results extend the current literature by highlighting the positive impact of capital funding and financing on market valuation. Policymakers can use these empirical results to make informed decisions about promoting higher investments into early-stage technology firms through venture capital financing from both the government and private sectors.

Modernidade crítica, pensamento criativo e inovação: um estudo sobre as startups no Brasil

Abstract This study aims to understand the criteria that influence the decision-making process of selecting startups that have innovated successfully. In this article, this kind of selection was made by venture capital enterprises. We studied the view of the investors, venture capital professionals, and startup entrepreneurs interviewed. We present the actual global characteristics of the main cities where innovation takes place and the modernism and critical modernism aspects and creative thinking beliefs (Einstein, Habermas). The qualitative research was carried out using an exploratory approach and case study methodology based on semi-structured interviews (nine in total) with professionals from venture capital funds, startup entrepreneurs, and investors. The interviews confirmed several relationships between theories found in the business management literature. Findings such as post-bureaucratic environments (Heckscher), Mintzberg’s (1995) Adhocracy, and Simon’s decision-making process (1987) for pattern recognition were corroborated by the analysis of the interviews. We present some initiatives for innovation such as Station F in France, El Espacio La Nave, Madrid, the Project Porto Maravilha in Rio, and Vila Olimpia e Paulista avenue, São Paulo.

Venture capital financing in the eSports industry

We examine the drivers of venture capital financing raised by eSports companies, using the Crunchbase database containing information on private and public companies receiving any type of venture capital funding worldwide. We find that companies located in Asia-Pacific and Americas attract more funding than in Europe. Venture capital funds are more likely to fund late stage and older companies, than innovative early stage and younger firms. We also observe that the founders’ previous experience plays a significant role in explaining the level of funding. Companies with at least one founder with previous eSport, managerial or start-up experience are more likely to get more funding by venture capital funds. Our research provides new evidence on how venture capital funding is allocated between late stage and early stage firms as well as between older and younger companies in the eSport-industry and in different markets.

The inefficiencies of venture capital funding

Despite plentiful research into venture capital (VC), the process of obtaining funding still frustrates both VC firms and startups. While uncertainty is necessary for the returns that VC investors desire, there are inefficiencies in the process that stem from information asymmetry. We articulate those inefficiencies from both the founder and the VC perspective and offer some pathways toward reducing those inefficiencies to drive better outcomes for startups, VCs, and society as a whole.

Social Media Alleviates Venture Capital Funding Inequality for Women and Less Connected Entrepreneurs

Start-ups are increasingly using social media to signal quality and provide information to potential investors. However, the effectiveness of social media on venture capital (VC) financing is likely to be heterogeneous, differing by demographic and network characteristics of the founders. In this paper, we examine whether social media use can improve funding outcomes for firms founded by women and by other people also lacking connections to the investor network, two groups that face greater difficulties in securing VC financing. Using Twitter data and data on VC investment in start-ups from Crunchbase, we explore the interaction effect between Twitter usage and gender and between Twitter usage and the network constraint measure. Overall, we show that social media can mitigate some disparities in financing experienced by these firms through improving information access. We find that this effect is stronger for first-time entrepreneurs than for experienced ones, stronger for attracting new investors than repeat ones, and stronger in more competitive markets. Collectively, these results suggest that social media could primarily help women and less connected individuals obtain financing by alleviating information asymmetry between founders and investors. This paper was accepted by D. J. Wu, information systems. Funding: The authors thank Wharton Mack Institute of Innovation Management for funding support. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4728 .

Legal Mechanisms for the Stimulation of the Digital Economy in Developing Countries

Background: The digital economy has become a significant driver of economic growth in developing countries. However, to fully realise the benefits of the digital economy, legal mechanisms must be put in place to create an environment for its growth. Methods: This article provides an overview of legal mechanisms that can be implemented to stimulate a digital economy in developing countries. These legal mechanisms include the development of appropriate legal frameworks for e-commerce, intellectual property rights protection, privacy and data protection laws, and cybersecurity laws. Additionally, legal mechanisms that promote innovation and entrepreneurship, such as tax incentives, venture capital financing, and business incubators, are also essential. Results and conclusion: The implementation of legal mechanisms can help developing countries build a vibrant digital economy, create jobs, and improve the standard of living for their citizens.

The impact of independent and heterogeneous corporate venture capital on firm efficiency

While corporate venture capital funds (CVCs) are commonly analyzed as homogenous units, they display significant heterogeneity across various organizational aspects, which affect them and subsequently their portfolio firms. Using a sample of 383 European portfolio firms from the longitudinal VICO dataset, we first investigate the impact of investor type (independent vs corporate) on firm operating efficiency. We show that firms backed by CVCs suffer reductions in productivity. We then account for CVC heterogeneity and find that these significant reductions in operating efficiency only occur for ventures backed by endoisomorphistic CVCs, which resemble more corporate structures. By contrast, firms backed by exoisomorphistic CVCs, which resemble more independent venture capital structures, do not show significant differences in productivity compared to ventures that receive independent venture capital backing.

Unionizing High Tech: Opportunities and Obstacles

The WERN report documents the rise of worker-led collective action in the tech industry. We distinguish two types of activism emerging from tech professionals—demands for greater corporate social responsibility and demands for improved employment rights—and consider the opportunities each affords the larger labor movement. In the second section, we consider how the venture-capital funding model that structures the tech industry presents unique challenges to traditional union-organizing campaigns.

The ownership structure of corporate venture capital financing and innovation

Previous empirical findings on the impact of corporate venture capital (CVC) investment on invested entrepreneurial companies' technological innovation are rather mixed. In this paper, I explore a key determinant of this relationship-the ownership structure of CVC firms. It is likely that the ownership structure of CVC firms also affects their ability to select portfolio companies. To address the selection bias of CVC firms, I use propensity score matching to compare private and public CVC-backed entrepreneurial companies. The results show that entrepreneurial companies that are backed by private CVC firms are more innovative than those that are backed by public CVC firms. In addition, I also explore the underlying mechanism and find that private CVC investors are more failure tolerant compared with public CVC investors and this leads to the superior ability in stimulating innovation performance.

Reliability of interim performance in private equity funds

ABSTRACT We compared the interim and final realized internal rate of return for liquidated buyout funds (238) and venture capital funds (233) in the U.S. from 1985 to 2019. The results revealed that buyout funds’ interim performance tends to be underestimated, while that of venture capital funds can be underestimated or overestimated, depending on the period and associated global events. Further, we found that private equity funds’ interim performance is affected by fund performance, investment stage, and stock market performance. These results were robust to other performance measures. Our findings will assist private equity investors, policy makers, and regulators to better evaluate interim performance reliability based on fair value estimates.

Lessons From Government Venture Capital Funds to Enable Transition to a Low-Carbon Economy: The U.K. Case

Early-stage small- and medium-sized enterprise (SME) cleantech innovation, if properly funded, can initiate disruptive low-carbon reduction impacts across a wide range of sectors to meet climate change net zero requirements. The role of venture capital (VC) finance in successfully commercializing new technologies remains contentious, particularly where socio-environmental returns may well be greater than the economic returns that are the exclusive captures of the investors. This article addresses a pertinent question facing government policymakers: how best to support VC to achieve climate change objectives? It focuses on the supply-side policy, design, and implementation of four U.K. government-backed venture capital funds (GVCFs) at various stages of their development. A systems framework and an absorptive capacity learning lens inform a grounded qualitative methodology, spanning a decade of over 100 in-depth interviews with policymakers, fund managers (private and public), alternative finance providers, and low-carbon finance market experts. A model is developed to assess GVCF learning evolution to address the nascent early-stage precommercialization cleantech venture investment market. This avoids the pitfalls of quantitatively analyzing the investment outcomes of these long-horizon investment funds prior to their completion by providing qualitative process findings that inform policy, practice, and theory in the evolving early-stage low-carbon GVCFs.

How Do Sustainability Stakeholders Seize Climate Risk Premia in the Private Cleantech Sector?

This paper explores the strategies and practices of capturing climate risk premia for venture capital (VC) fund managers and entrepreneurs in the private cleantech sector. It also examines the impact of the feed-in tariffs (FITs) policy on the management of cleantech investments. It is shown that a longer investment period, less investment capital in cleantech investment management strategies, and optimistic climate risk management practices will help investors to better capture climate risk premia. In fact, the FITs policy will give rise to VC fund managers and entrepreneurs having a positive view regarding the prospects of the cleantech sector, motivating them to make long-term investments. Furthermore, it is shown that the greater the impact of the FITs policy, the greater the climate risk premia to be captured. In addition, the captured climate risk premia are greater in weaker economic conditions and in times of increased uncertainty with regard to product demand.

Has persistence persisted in private equity? Evidence from buyout and venture capital funds

This paper presents new evidence on performance persistence for U.S. private equity (buyout and venture capital) funds. We use high quality cash-flow data from Burgiss's large sample of institutional investors (as of December 2020) which allows us to examine how persistence has changed over more than three decades of fundraising. Venture capital (VC) performance remains remarkably persistent across funds raised by the same general partner (GP). In contrast, buyout funds' performance persistence becomes noticeably weaker over time. The patterns are different when we restrict the analysis to information that would have been available to investors – interim performance on the previous fund at the time a new fund is raised – rather than using final, or latest, performance. We find little evidence of persistence for buyouts, especially post-2000. We continue to find persistence for VC funds though it declines post-2000. The differences are driven by interim performance reported at the time of fundraising being only moderately correlated to final performance and GPs avoiding fundraising when interim performance is poor. Finally, we look at GPs who introduce new fund styles and find that performance is noticeably lower for buyouts (but not VC). Exploring the reasons for these divergent trends in persistence between buyout and VC is a promising area for future research.

Maneuvering the odds: The dynamics of venture capital decision‐making

AbstractResearch SummaryThis article investigates venture capital (VC) decision‐making, a process that occurs under changing conditions and limited, ambiguous information. We shed new light on the inherent dynamics of this strategic process. One of the key distinguishing features of our study is its unprecedented access to the internal decision‐making process of a VC firm. By analyzing unique, longitudinal data capturing 2,383 proposal selection processes conducted over the life of one venture capital fund, we show how decision‐making speed and the information cues that decision makers rely upon will, over time, change in systematic and predictable ways. Specifically, our approach allows us to identify fundamental, unexplored patterns with respect to the selection process as a whole and the multiple stages within the process.Managerial SummaryEach year venture capitalists receive hundreds of investment proposals, but is every proposal received by a venture capitalist processed equally? In this study, we show how the source of a proposal and the available amount of investment capital, factors that are not contained within the pages of a proposal, may influence the investment decision‐making process. Our results highlight the impact of being referred to a venture capitalist by a trusted source, as more time is spent evaluating these proposals and they proceed further along in the process. We also find that venture capitalists process proposals more quickly as the capital in the fund is invested over the life of the fund.

Investment decisions under uncertainty: Corporate venture capital as a real option

AbstractThis paper aims to assess the role of corporate venture capital (CVC) as option‐creating investments and how corporate investors practice CVC options in their investment decisions. Using a sample of 4206 US firms between 1998 and 2019, our results show that sector fit and geographic fit reduce uncertainty and impact investors' decisions on CVC investments. When exogenous uncertainty is mitigated, CVC‐backed companies experience higher investment amounts than independent venture capital funds (IVC)‐backed ones. The results evidence that follow‐on investments motivate IVC‐backed companies to exit via IPOs. At the same time, a prolonged duration for the organisational learning option leads CVC‐backed companies to exit via acquisition. This study helps investors to reduce uncertainty surrounding investments and improve the usefulness of their real options. We also provide implications for how policymakers target and develop an entrepreneurial ecosystem.