Trade-offs in the investment decisons of European venture capitalists

Muzyka, Dan; Birley, Sue; Leleux, Benoı̂t

doi:10.1016/0883-9026(95)00126-3

Cited by 301 publications

(256 citation statements)

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“…The importance of corporate reputation in attracting investment capital has been firmly established (Stuart et al, 1999;Certo, 2003). In addition, the reputation of key individuals or core members affiliated with an organization has been found to play a similar role (Tyebjee and Bruno, 1981;Gorman and Sahlman, 1989;Muzyka et al, 1996;Cohen and Dean, 2005;Franke et al, 2006Franke et al, , 2008Beckman, Burton and O'Reilly, 2007;Pollock et al, 2010).…”

Section: Resultsmentioning

confidence: 99%

“…Since investors are often approached by the founding members of the nascent organization for financing, this implies that the individual reputation of founding members can serve as a quality signal.. Earlier studies show that the reputations of core organizational members, such as CEOs (D'Aveni, 1990), top management teams (Cohen and Dean, 2005;Higgins and Gulati, 2006), other board members (Certo, 2003;Musteen, Datta and Kemmerer, 2010) or prestigious affiliates (Pollock, Chen, Jackson and Hambrick, 2010) have an impact on a firm's ability to attract investment capital, particularly with respect to start-up teams of new ventures (Tyebjee and Bruno, 1981;Gorman and Sahlman, 1989;Muzyka et al, 1996;Franke et al, 2006Franke et al, , 2008.…”

Section: Reputation and Selectionmentioning

confidence: 99%

“…Our study focuses on the effect of performance-based reputations of a new venture's founding members on different types of potential investment capital providers. We build specifically on studies that investigate the impact of top management team characteristics on investor behavior (Tyebjee and Bruno, 1981;Gorman and Sahlman, 1989;Muzyka et al, 1996;Cohen and Dean, 2005;Henkel, 2006, 2008;Beckman, Burton and O'Reilly, 2007;Pollock, Chen, Jackson and Hambrick, 2010).…”

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

“…Signals that can be used as proxies of missing information are important determinants of the outcome of competitive processes (Shapiro, 1983;Podolny, 1993;Rindova, Petkova, Williamson and Sever, 2005). For producers, reputational signals based on past performance (Fombrun and Shanley, 1991;Rindova, Petkova and Kotha, 2007) (Tyebjee and Bruno, 1981;Gorman and Sahlman, 1989;Muzyka et al, 1996;Franke et al, 2006Franke et al, , 2008.A performance-based reputation is a multidimensional construct (Fombrun and Shanley, 1990;Rhee and Valdez, 2009) that besides past market success can be based on many signals from many different sources. These signals include contests 15 (Rao, 1994), awards (Anand and Watson, 2004;Gemser, Leenders and Wijnberg, 2008) reviews (Basuroy, Chatterjee and Ravid, 2003; Shugan, 1997), ratings (Podolny, 1993), and even the mere volume of media attention (Pollock and Rindova, 2003;Rindova, Petkova and Kotha, 2007).…”

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confidence: 99%

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Nascent ventures competing for start-up capital: Matching reputations and investors

Ebbers

Wijnberg

2012

Journal of Business Venturing

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While earlier studies focused on the general effects of corporate or individual reputations on attracting investment capital, a major contribution of this study is to distinguish between different types of reputations and different types of investors, and then analyze how particular types of reputations have an effect on particular types of investors. We do this by applying selection system theory, which is an approach to understanding competitive processes by focusing on the identity of the decision makers whose evaluations determine the outcome of these competitive processes. The three basic types of selectors are: market selectors, peer selectors and expert selectors.This tripartite classification allows us to categorize types of reputations on the basis of their sources. First, if a reputation is based on success in consumer markets, for example (end-) consumers' quality perceptions of a specific brand of shampoo, it can be linked to market selection. Second, a reputation type can be linked to expert selection if it originates from expert judgments. An example is a credit rating agency 4 such as Moody's. Third, if the reputation is based upon success among peers, for example winning an award at the 'Oscars' where the jury largely consists of other filmmakers, it can be linked to peer selection.At the same time types of investors can be categorized by considering both the characteristics and the goals of the investors making the investment decisions. First, if investors back a venture because they primarily hope that many consumers will like and buy the product they can be identified as market selectors. Second, if investors are (industry) peers of the founding members of the new venture they can be identified as peer selectors. Third, if they are neither market nor peer selectors they can be categorized as expert selectors. This tripartite categorization opens the way to the main argument of this paper: nascent organizations will be more successful in attracting investment capital from an investor if their founding members have performance-based reputations of a type that matches the type of the investor.In the empirical section of this paper we test this argument by studying the impact of the reputations of producers and directors on the investment decisions of the three main investors in the Dutch film industry: distributors, television broadcasters and the Film Fund. We find support for our main theoretical argument, IntroductionAn adequate resource base (Brush, Greene, Hart and Haller, 1993;Davidson and Honig, 2003;Parker and van Praag, 2006), and especially adequate financing Earlier studies applied selection system theory to study competition in product markets. For example, how winning or being nominated for an award impacts box office revenues of mainstream or art-house films (Gemser et al., 2008). Employing selection system theory to better understand the financing stage further tests the usefulness of this framework and also extends the theory itself.Our empirical setting is the Dutch film industr...

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Section: Resultsmentioning

confidence: 99%

Section: Reputation and Selectionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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confidence: 99%

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Nascent ventures competing for start-up capital: Matching reputations and investors

Ebbers

Wijnberg

2012

Journal of Business Venturing

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Venture Capital

Vanacker¹,

Manigart²

2013

Alternative Investments

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Venture Capital Research

Shepherd

Zacharakis

2015

Wiley Encyclopedia of Management

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Venture capital has had an outsized influence on funding high growth ventures, backing such companies as Google, eBay, and Twitter amongst others. This article places venture capital into the funding context by classifying types of venture capital firms (corporate and traditional) amongst other equity sources like individuals (angels) and brokers. The article then details what do; specifically, it looks at the pre‐ and post‐investment activities. Although venture capital has been extensively researched, there are still plenty of opportunities for continuing study. In the pre‐investment stage (includes all activities up and to signing the investment contract), fruitful avenues include deeper study of investment biases, differing investment contexts, quality of information surrounding investments, and the due diligence process. In the post‐investment stage (all activities undertaken after the investment has been made), research might investigate conflict management between the entrepreneur and venture capitalist, and how reputation impacts the ability of the venture capitalist to add value. Finally, more recent research has started to study the founding of venture capital firms, specifically around raising funds. Venture capital continues to be a critically important source of capital for new ventures and an area for fruitful research.

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Trade-offs in the investment decisons of European venture capitalists

Cited by 301 publications

References 9 publications

Nascent ventures competing for start-up capital: Matching reputations and investors

Nascent ventures competing for start-up capital: Matching reputations and investors

Venture Capital

Venture Capital Research

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