Venture Capital and the Invention to Innovation Transition

Arque-Castells, Pere

doi:10.2139/ssrn.3214823

Cited by 1 publication

(1 citation statement)

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“…VC firms prefer to invest during the development stage. They are usually not interested in basic research because the results of such research are too uncertain (Stuck & Weingarten, 2005;Arqué-Castells, 2018). Thus, VC firms prefer to invest in firms that have already obtained some results in their developments so that these developments can be turned into marketable innovations within a reasonably predictable time frame (Arqué-Castells, 2012).…”

Section: Literature Reviewmentioning

confidence: 99%

Biotechnology firms, signals, and venture capital investment

Udina

Domingo-Perez

Salas

2022

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Purpose: Biotechnology has gained such prominence that approximately 50% of the new drugs developed in the world are of biotechnological origin. Some of the Covid-19 vaccines are a good example of this. The biotechnology R&D projects are characterized by high costs, prolonged development times, and a high degree of uncertainty and failure. Few types of financial agents undertake such a risky investment: venture capital firms invest in high-tech, high-risk companies. In this paper, we analyze the signals that influence venture capital investment decisions.Design/methodology/approach: Hypotheses about the effectiveness of these signals are validated by means of a probit regression with panel data on a sample of 210 biotechnology companies established in Spain over a ten-year period.Findings: Positive and negative signalling effect has been found for some of the phenomena analysed, which validate the proposed model.Research limitations/implications: A convenience sample has been used for methodological reasons, and some phenomena that could have some effect on the venture capital investment decisions have not been possible to observe, due to the lack of available data.Practical implications: It can be crucial for biotechnology firms that their managers know which characteristics make these firms attractive to venture capital firms. Additionally, it is important to know those signals that, instead of favouring this investment, deter it.Originality/value: The focus on the first venture capital investment -instead of the most usual focus on the amount invested- as an event that mitigates the information asymmetry level, the use of a probit regression with panel data, and such a quantitative analysis on the Spanish biotech industry, never done before, highlight the originality of this work.

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Section: Literature Reviewmentioning

confidence: 99%