Start-up investment with scarce venture capital support

Abstract

Venture capitalists, representing informed capital, screen, monitor and advise start-up entrepreneurs. The paper reports three new results on venture capital (VC) finance and the evolution of the VC industry. First, there is an optimal VC portfolio size with a trade-off between the number of companies and the value of managerial advice. Second, advice tends to be diluted when the industry expands and VC skills remain scarce in the short-run. The delayed entry of experienced VCs eventually restores the quality of advice and leads to more focused company portfolios. Third, as a welfare result, VCs tend to provide too little advisory effort and to invest in too few companies. Testable implications are also discussed.

Assessing the impact of public venture capital programmes in the United Kingdom: Do regional characteristics matter?

“…Such schemes can be either directed to small and medium enterprise, as in the cases of public funds directly invested in individual portfolios of SMEs, or indirectly channeled to venture capital firms. In this latter case, indirect support occurs since the government (or other regional or local public authorities) invests as a limited partner in one or more professional venture capital funds (Poterba, 1989, Gilson, 2002, Kanniainen and Keuschnigg, 2004, Avnimelech and Teubal, 2006, Cumming, 2007. The involvement of commercially motivated, private sector investors acting as "agents" on behalf of government "principals" in managing so-called "hybrid funds" has now become the predominant modus operandi in several countries of the world (Jaaskelainen et al, 2007).…”

Regulatory harmonization and the development of private equity markets

“…Further work could consider expanding the data in terms of more closely investigating different asset classes, as well as possibly for different time periods and different countries (see, e.g., Mayer, 2001, for differences in institutional investor behavior in relation to regulations in the UK and the U.S.). The data from The Netherlands may reflect a comparative degree of skill associated with Dutch institutional investor contracting with private equity funds (see also the theoretical work of Kanniainen and Keuschnigg, 2004), alongside cultural differences and internal structures within Dutch institutional investors. Another possibility is that the data in this paper are pertinent to the period following the crash of the Internet bubble (unlike prior work on topic), a time when institutional investors are particularly concerned with regulations in private equity and venture capital.…”

The role of venture capitalists in the regional innovation ecosystem: a comparison of networking patterns between private and publicly backed venture capital funds

“…The competence of the venture capitalist investment managers arises from active business involvement in the respective industry. It cannot be acquired in short order, nor is it easily transferable (Kanniainen and Keuschnigg 2004). Gompers and Lerner (2001, p. 4) note that: ''not only is it difficult to raise a new venture capital fund without a track record, but the skills needed for successful venture capital investing are difficult and time-consuming to acquire''.…”

“…Gompers and Lerner (2001, p. 4) note that: ''not only is it difficult to raise a new venture capital fund without a track record, but the skills needed for successful venture capital investing are difficult and time-consuming to acquire''. Therefore, Kanniainen and Keuschnigg (2004) argue that the limited supply of informed venture capitalists, rather than the availability of financial capital, is the scarce factor in launching innovative firms. This has direct implications to the creation and management of the UK publicly backed funds which are all relatively young.…”

“…mentoring skills, strategic insights, networks) (Pierrakis and Westlake 2009). Despite their commitment to act as commercial funds, various scholars (Mason and Harrison 2003; The role of venture capitalists in the regional innovation… Kanniainen and Keuschnigg 2004;Schäfer and Schilder 2009) suggest there is a lack of venture-capital skills in publicly backed venture capital funds, to enable effective fund management. According to Munari and Toschi (2010), even if the public intervention was targeted to companies with a real need for government aid, this financial support could be inefficiently managed by local venture capitalists due to their lack of experience and skills.…”