A UK `Hands‐off' Venture Capital Firm and the Handling of Post‐investment Investor‐‐Investee Relationships

Abstract

Commentators on the UK venture capital industry have observed that it has reached a watershed in its development, with the players of the 1980s having to reassess their positions and possibly, in some cases, their continuing viability as independent operators. It has been suggested that increasing numbers of UK venture capitalists are moving towards a more`hands on' approach to postinvestment relationships with investees in the hope of improving performance and investment out-turns. Research in the USA suggests that the hoped for improvement by this route is not a foregone conclusion. In this paper we examine how a longstanding and successful UK venture capitalist makes a widely publicised`hands-o' approach work ± and how their investees see the approach working. Our research supports the view that, over time, and by a process of feedback learning from post-investment performance monitoring, investees are selected that are compatible with this particular approach. Our ®ndings demonstrate that mutual trust is one of the most vital elements in successful`hands-o' post-investment relationship building ± and that achieving this requires careful and considered nurturing. Moreover, because`hands-on' involvement can be expensive in terms of investor management resources and against the stated investor policy, relationships of the principal±agent type were kept to a minimum as far as was possible consistent with protecting investments. INDUSTRY BACKGROUNDThe early stirrings of a UK venture capital industry began in the UK in the 1930s (Lorenz, 1989), but it was only in the early 1980s that it really began to develop and expand. At the foundation of the British Venture Capital Association in 1983, there were only 36 members. Six years later in 1989, the industry had grown to a peak of 124 venture capital ®rms. This rapid expansion in the UK can be attributed to several factors, particularly the growth of the US venture capital industry in the mid 1970s which provided a role model and information for the UK counterpart (

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