Another hybrid? Family businesses as venture capitalists

Abstract

Purpose This paper addresses the phenomenon of venture capital firms which are also family businesses (VCFBs). The purpose of this paper is to explore and understand the phenomenon of VCFB by answering the following questions: What are the features of professionalization in VCFBs? And, how do professionalization and types of family businesses explain the strategies and governance of VCFBs? Design/methodology/approach As an explorative case study, it maps the Swedish venture capital (VC) industry and compares two VCFBs and their business investments with regard to strategy and governance. Findings By suggesting two major configurations, the study explains how family business development and levels of professionalization relate to differences in VCFBs’ strategies, which in turn, affect their governance. The personal VCFB features active owners who personally take responsibility roles and strongly focus on customers and relationships. The administrative VCFB strongly focuses on predetermined financial metrics, high ethical awareness among board members, and ongoing interplay between the active family board members and minority shareholders. Research limitations/implications The study was conducted in Sweden and concerns Swedish VCFBs. The paper contributes to the literature by combining the two currently separate research streams, i.e. family business and VC, highlighting the importance and consequences of family ownership in VC businesses. Practical implications The present study provides stock market investors and stock analysts with a deeper understanding of VCFBs’ strategy incentives. By identifying the kind of VCFB and its relation to strategy, more reasonable assessments and analyses of the VCFBs’ actions will be possible. Family firms willing to accept VC-finance should consider the type of VC and the potential consequences of family ownership. Originality/value This study is the first to classify VC firms as family businesses. Moreover, it shows the features of professionalization in VCFBs by suggesting a set of configurations.

Three stages of entrepreneurial orientation: the founder’s role

“…Thus, the process of positioning is clearly related to the dynamic change of EO. Overall, this configuration highlights the individual level of EO (Nordqvist et al, 2008;Ljungkvist and Boers, 2017).…”

“…Anderson et al, 2015). For example, the VC firm's management often works in close collaboration with the portfolio company's management (Ljungkvist and Boers, 2017;Bacon et al, 2013). Generally, VC firms often control the board and represent investors ( Jensen, 1993).…”

“…The awareness of how certain ownership types influence EO can assist initiatives for balancing EO and making reasonable adjustments. For instance, EO that centers too much on the founder in a family firm (personalized EO) could be diminished by increasing professionalization, which could reduce emotionally biased decision making (Ljungkvist and Boers, 2017). Furthermore, this study is relevant for all ownership changes, as it raises awareness of the intended and unintended consequences when ownership is changed and a new agenda is established.…”

A theory of venture capital family business: a governance trajectory

“…The motives behind this increase are not fully understood, but some research has shown TFF owners' affinity towards certain external investors, such as individual investors, family offices (Neckebrouck et al, 2017) and investors that are family firms, i.e. VCFBs (Ljungkvist and Boers, 2017).…”

“…Differences regarding governance and ownership are likely the most decisive elements distinguishing venture capital (VC) companies' goals and strategies (Bertoni et al, 2015). Since a significant proportion of VC companies are family-owned, their governance is affected by the generational changes in the owner family (Ljungkvist and Boers, 2017). However, more research on how the transgenerational aspect influence governance is needed (Suess, 2014;Suess-Reyes, 2017; which also concerns how different investor types handle the deal processes (Schickinger et al, 2018).…”