Institutional barriers to venture capital financing: an explorative study for the case of Iran

Abstract

Purpose This paper aims to explore the barriers that constrain the venture capital (VC) financing in Iran based on the institutional theory. Design/methodology/approach To answer the question, “How institutional barriers constrain the VC financing in Iran?”, 31 detailed interviews were conducted, and the interviewed data were analysed by using the grounded theory method. Findings There exist several institutional barriers (formal and informal) in different stages of the VC investment process in Iran. Major formal institutional deficiencies include lack of appropriate financial regulations, inefficacy in tax, labour, property rights, financial disclosure, bankruptcy, investor’s protection laws and regulations, lack of credit rating/scoring system, inefficacy in small and medium-sized enterprise-supporting policies and capital market underdevelopment. Moreover, there exist some informal institutional barriers such as culture of capitalism disapproval, culture of secrecy, individualistic customs and weakness of managerial skills that constrain VC activities in Iran. Research limitations/implications The research findings imply that the government’s role should change from “establishment of government-sponsored VC funds” to “enforcement of institutional reforms that lead to an appropriate framework for VC investment”. Originality/value This paper has made three key contributions. First, it has provided comprehensive insights into how institutional barriers constrain the VC investment in a developing country. Second, a new stage-wise model is proposed for analysing the VC investment process. Third, existing knowledge about the role of both formal and informal institutions in the VC investment is extended.

Journal of entrepreneurship in emerging economies (JEEE): reflecting on the past five years while thinking about the future

“…Meil and Salzman (2017) drew on a comparative case study approach to explore how opportunities for growth emerge among smaller innovative technology entrepreneurial firms in India, while Zheng and Wong (2016) examined how leadership and ownership emerge in corporations using a single in-depth case study. Shojaei et al (2018) on the other hand, conducted 31 detailed interviews to understand how institutional barriers constrain venture capital (VC) financing in Iran, while Aldairany et al (2018) provided a detailed review of 57 peer-reviewed articles to develop an overview of the literature on entrepreneurship in conflict and post-conflict societies. Only four articles were found to have used mixed-method approaches, while six articles were conceptual in nature.…”

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“…The creation of international rankings simplifies the research procedure for certain respondents, consumers, competitors, or society. S. Shojaei et al (2018) note that there are several institutional barriers (formal and informal) at different stages of the venture capital (VC) investment process that hinder funding. Thirty-one detailed surveys were conducted, and the data were analysed using grounded theory, and the study concludes that the main barrier is the lack of a credit rating/score system.…”

Performance implications of corporate venture capital investments for entrepreneurial ventures: the differing moderating effects of R&D intensity before and after IPO

“…By integrating resource allocation at the organizational level and the market environment level, especially discussing the subtle changes in entrepreneurial ventures’ resource integration capability at different times, we further develop and enrich organizational learning theory in CVC research (Alvarez-Garrido and Dushnitsky, 2016). More significantly, considering that entrepreneurial ventures’ funding demand for corporate investors in emerging countries continues to grow while existing research is not sufficient (Shojaei et al ,2018), our study introduces new ideas for CVC research in emerging markets. Secondly, this paper enhances our understanding of how CVC investment may shape entrepreneurial ventures’ financial and strategic performance, i.e.…”