Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence

Hellmann, Thomas; Puri, Manju

doi:10.2139/ssrn.243149

Cited by 583 publications

(705 citation statements)

References 17 publications

Supporting

Mentioning

657

Contrasting

Unclassified

Order By: Relevance

“…They ensure that the management of a firm is professionalized so that it is not too dependent upon the entrepreneur or any specific professional manager. In this way, they make the firm easier to finance, initially by themselves and eventually by dispersed outsiders (for some evidence in this sense see Hellmann and Puri (1999)). Another way to ensure more power to outsiders is to provide a firm with an internal bureaucracy that generates verifiable information on employees' performance (Novaes and Zingales (1998)).…”

Section: B1 Implications For Capital Structurementioning

confidence: 99%

In Search of New Foundations

Zingales¹

2000

The Journal of Finance

1,043

207

View full text Add to dashboard Cite

In this paper I argue that corporate finance theory, empirical research, practical applications, and policy recommendations are deeply rooted in an underlying theory of the firm. I also argue that although the existing theories have delivered very important and useful insights, they seem to be quite ineffective in helping us cope with the new type of firms that is emerging. I outline the characteristics that a new theory of the firm should satisfy and how such a theory could change the way we do corporate finance, both theoretically and empirically.

show abstract

Section: B1 Implications For Capital Structurementioning

confidence: 99%

In Search of New Foundations

Zingales¹

2000

The Journal of Finance

1,043

207

View full text Add to dashboard Cite

show abstract

“…R ecent growth in the Venture Capital (VC) industry has stimulated new academic research exploring the structure of Venture Capital deals. Gompers (1995), Hellmann and Puri (2002), and Stromberg (2003, 2004) show that VCs not only support firms with essential financing, but also provide value-added services to their portfolio companies 1 aimed at monitoring the progress and the strategy of firms. While we know much more than earlier studies, several research questions are still awaiting answers, including the role and effects of VCs on the inner governance of firms, conditional and unconditional on the size of the investment injected and on the geographical area of the portfolio company.…”

Section: Introductionmentioning

confidence: 99%

The Effects of Venture Capitalists on the Governance of Firms

Bonini

Alkan

Salvi

2011

Corporate Governance

View full text Add to dashboard Cite

Manuscript Type: EmpiricalResearch Question/Issue: What determines venture capitalists influence on the governance of firms? How do venture capitalists shape the governance of their investees? Are venture capitalists governance practices consistent across countries? These important questions are under-investigated in the extant literature. In this study, we shed light on the effects of venture capital investors on a large set of governance decisions and we discover the existence of striking cross-country differences. Research Findings/Insights: We test our conjectures on a unique hand-collected questionnaire-based dataset of 164 companies in five countries and two regions (Europe and the US). Our empirical results show that there is a strong and positive relationship between VCs' funding and their influence on some factors like decisions on CEO hiring, executive compensation, board decisions and appointments. Employee incentives are also positively related to the proportion of VC funding. On the other hand, results show that the proportion of VC funding is only marginally significant in explaining VC influence on strategy direction and investment planning. Our analysis though, offers a remarkably different view after splitting data into European and American subsamples. Theoretical/Academic Implications: Our results provide a novel view of the functioning of the Venture Capital industry and its degree of pervasiveness in the management of portfolio companies. Adopting a unique dataset, we add new evidence on detailed governance decisions, thus supporting the idea that the incremental contribution of a professional investor to a new venture is largely exceeding the capital infusion only. Finally, we show that governance decisions exhibit significant country effects. This evidence supports the view that a global theory of corporate governance cannot rely on a single interpretation framework such as agency theory, but needs to be integrated with predictions from alternative views such institutional theory. Practitioner/Policy Implications: Corporate governance is the essential mechanism allowing proper management of financial and corporate resources by aligning incentives of employees and investors, thus enabling oversight and control on companies. Yet, corporate governance rules and mechanisms are costly and have different effectiveness across countries. Our results provide guidance to investors in selecting the appropriate set of governance provisions conditional on a set of investment-specific factors.

show abstract

“…Furthermore, we found slight support for Hellmann and Puri (2000), who suggest that with the right founder, venture capitalists can well foster professionalisation further down the organisation. But if there are problems with the founding CEO, venture capitalists devote their time and attention to replacing the founder with a professional CEO.…”

Section: Added Value Of Venture Capitalistsmentioning

confidence: 71%

“…This perspective examines whether financing by venture capitalists significantly influences the professionalisation of start-up companies. Based on US data, Hellmann and Puri (2000) empirically gathered a variety of evidence related to the building of the organisation, such as the recruitment processes, the overall human resource policies, the adoption of stock option plans and the hiring of a vice president of marketing and sales. For each of these dimensions, they found that companies that obtain venture capital are more likely and/or faster to professionalise along these various dimensions.…”

Section: The Added Value Of the Venture Capitalistmentioning

confidence: 99%

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

Berghe

Levrau

2002

Corporate Governance

View full text Add to dashboard Cite

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.

show abstract

Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence

Cited by 583 publications

References 17 publications

In Search of New Foundations

In Search of New Foundations

The Effects of Venture Capitalists on the Governance of Firms

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

Contact Info

Product

Resources

About