Venture Capital and Knowledge Transfer

Abstract

This paper explores a new role for venture capitalists, as knowledge intermediaries. A venture capital investor can communicate valuable knowledge to an entrepreneur, facilitating innovation. The venture capitalist can also communicate the entrepreneur's innovative knowledge to other portfolio companies. We study the costs and benefits of these two forms of knowledge transfer, and their implications for investment, innovation, and product market competition. The model also sheds light on the choice between venture capital and other forms of finance, and the determinants of the decision to seek patent protection for innovations. Our analysis provides a rationale for the use of contingencies (specifically, patent approval) in VC contracts documented by Kaplan and Stromberg (2003), and for recent evidence on patterns of syndication among venture capitalists.

Do venture capital firms benefit from a presence on boards of directors of mature public companies?

“…Following Celikyurt, Sevilir, and Shivdasani (2012) and González-Uribe (2013), Dessi and Yin (2014) further examined the VC directors' role as knowledge intermediaries. For instance, they found that VC directors can communicate valuable knowledge to entrepreneurs, and to other portfolio companies, thus facilitating innovation.…”

“…The second benefit we examine is VC investment performance. A number of recent studies have examined VC firms' roles as knowledge intermediaries (González-Uribe, 2013; Dessi and Yin, 2014). These studies have shown that VC investors can communicate valuable knowledge to entrepreneurs, and to other portfolio companies, thus facilitating innovation.…”

Influence of Venture Capital and Knowledge Transfer on Innovation Performance in the Big Data Environment

“…Technological innovation requires large investments. Venture capital (VC) has been recognized as a prominent financial source for innovative start-ups (Dessi and Yin 2015;Rymkul et al 2015). VC is a form of specialized financial intermediation that finances firms with the goal of realizing a capital gain by bringing them public or having them acquired within a few years (Dessi and Yin 2015).…”

“…Venture capital (VC) has been recognized as a prominent financial source for innovative start-ups (Dessi and Yin 2015;Rymkul et al 2015). VC is a form of specialized financial intermediation that finances firms with the goal of realizing a capital gain by bringing them public or having them acquired within a few years (Dessi and Yin 2015). A venture capitalist will inevitably transfer knowledge to facilitate innovation of a firm while monitoring and advising its portfolio companies (Bottazzi et al 2008;Bottazzi et al 2009;Sahlman and Gorman 1989;Lerner 1995).…”

“…A venture capitalist will inevitably transfer knowledge to facilitate innovation of a firm while monitoring and advising its portfolio companies (Bottazzi et al 2008;Bottazzi et al 2009;Sahlman and Gorman 1989;Lerner 1995). This type of knowledge transferred from venture capitalists can help venture-backed firms acquire important information, such as related to technological innovation, thus improving their technological innovation ability (Dessi and Yin 2015). These investors are therefore in a very favorable position to act as private knowledge providers of some venture-backed firms.…”