The Role of the Venture Capitalist as Monitor of the Company: a corporate governance perspective

Abstract

The monitoring and stewardship role of the owner is an important corporate governance issue that deserves far more attention. Our analysis focuses on the role of the venture capitalist (VC) as monitor of high-tech venture-backed companies. We provide evidence from the literature as well as a qualitative descriptive view of the experiences of Belgian VCs. The position of the VC sheds more light on the plenitude of roles an active owner can play. Furthermore, our findings highlight the need for a better understanding of the governance structure and processes of high-tech companies. Copyright Blackwell Publishers Ltd 2002.

The Juxtaposition of Social Surveillance Controls with Traditional Organizational Design Components*

“…We measure MONITOR using the fitted standardized factor scores from an analysis of four survey questions regarding whether the founder is the CEO, the percentage of shares the founder owns, whether any of the shareholders are VCs, and whether there are any blockholders (Engel et al 2002;Fischer and Pollock 2004). Empirical evidence shows that VCs (Gompers and Lerner 2001;Engel et al 2002;Van Den Berghe and Levrau 2002;Davila 2005), large blockholders (Shleifer and To validate the survey responses, we match the response to archival information contained in the firm's proxy statement. 17 We measure TEAM in a "hard" manner by asking VPs direct questions regarding the percentage of departmental employees involved in problem-solving teams and cross-functional teams.…”

Institutional Frameworks, Venture Capital and the Financing of European New Technology‐based Firms

“…One particularly strong firm-level corporate governance system on which we focus in this study is VC ownership. VC investors play a key role in NTBFs not only because they are expert monitors, but also because they professionalize the governance systems in their portfolio firms (Gompers, 1995;Sapienza et al, 1996;Van den Berghe & Levrau, 2002). VC investors are, for example, instrumental in expanding the management teams of their portfolio firms with key employees (Jain & Kini, 1999), replace them with more professional managers (Hellmann, 1998;Sahlman, 1990), and install more independent directors on their boards (Suchard, 2009;Williams, Duncan, & Ginter, 2006), all of which reduce the agency risks related to entrepreneurial opportunism (Hellmann, 1998).…”

“…VC investors are one of the most important owners in NTBFs, ranked second behind entrepreneurs themselves (George, Wiklund, & Zahra, 2005). These investors not only contribute financing to their portfolio firms, thereby directly easing financial constraints (Bertoni, Colombo, & Croce, 2010), they are also initiators of "good" governance practices, contributors of value-adding services and diligent monitors (e.g., Lerner, 1995;Sapienza, Manigart, & Vermeir, 1996;Van den Berghe & Levrau, 2002;Vanacker, Collewaert, & Paeleman, 2013). This suggests that VC ownership may also influence the relationship between national laws and the financing of firms; but how it will influence this relationship remains unclear.…”

The impact of contracts on trust in entrepreneur–venture capitalist relationships

“…Alternatively, VCs might already have neoclassical contracts in place which allow them to increase their influence over the venture and potentially reduce the ownership rights of the entrepreneur when firms perform poorly (Van den Berghe and Levrau, 2002). In either case, the increased control rights of the VC might create more tensions in the relationship, and erode the entrepreneur's trust in the VC.…”