Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence

Hellmann, Thomas; Puri, Manju

doi:10.1111/1540-6261.00419

Cited by 1,701 publications

(541 citation statements)

References 26 publications

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“…Lerner and Avrahami (2002) Several studies have reported important value added benefits provided by venture capitalists. These benefits include help in obtaining additional financing, improving investment decisions and providing non-financial assistance such as strategic planning and help in recruiting key executives (MacMillan et al, 1989;Gorman and Sahlman, 1989;Sapienza, 1992;Goupta and Sapienza, 1992;Sapienza et al, 1996;Hellman and Puri, 2001). Recent research on the VC investment decision process suggests that VCs lack a strong understanding of how they make decisions.…”

Section: Financementioning

confidence: 99%

Success in Israeli high-tech start-ups; Critical factors and process

2006

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This paper develops a model of the factors deemed critical for success in high-tech new ventures in Israel. Israel presents an interesting forum, geographically distant from main markets but richly endowed with human capital, new high-tech ventures are seen as an essential element of the economy. Yet, despite its importance, high-tech is characterised by risk and challenge. Consequently a model which draws on the experience of success and failures should be valuable. Our multi stage methodology enrolled the wisdom and experience of founders, managers and financiers of high-tech businesses to identify and categorise the importance of the factors and the role played by these factors. We found that success factors could be grouped as critical or as important. The first group categorised the idea, strategy, the core team's commitment, expertise and marketing as critical. Important factors were deemed to be management, customer relationships and research and development. The least important factors proved to be those external to the firm, the economy, politics and the general business environment. Overall the study emphasised that the attitudes and abilities of the core team were paramount. Although the model is based on the Israeli experience, many of the aspects are global. Consequently the study may have broad applicability.

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Section: Financementioning

confidence: 99%

Success in Israeli high-tech start-ups; Critical factors and process

2006

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“…For example, companies such as Adobe, AMD, Intel, Cisco Systems, Electronic Arts, Oracle, Sun Microsystems, Yahoo!, and Google raised funding at their seed stage from VC firms. Start-ups funded by institutional VC investors usually have a faster growing business (Hellman & Puri, 2002), create numerous jobs, and have an important impact on the business environment. These facts justify research on the VC industry even if VC firms only represent a limited source of funding at the seed stage of start-ups.…”

Section: Introductionmentioning

confidence: 99%

“…The lead investor develops social ties with the entrepreneur prior to investment. After closing the funding, he or she becomes strongly involved in the management of the start-up (Brander, Amit, & Antweiler, 2002;Hellman & Puri, 2002;Hsu, 2004;Lerner, 1995;Sapienza, 1992). Generally, he or she is on the board of directors of the invested company.…”

Section: Introductionmentioning

confidence: 99%

“…Their involvement includes service on the boards of firms in their portfolios, frequent informal visits, meetings with customers and suppliers, and active involvement in key personnel and strategic decisions." Other scholars underscore the involvement of VC firms in the management of start-ups (Gorman & Sahlman, 1989;Hellman & Puri, 2002;Wijbenga, Postma, & Stratling, 2007). This monitoring creates a strong tie between the lead investor and the entrepreneur.…”

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confidence: 99%

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Syndication of Venture Capital Investment: The Art of Resource Pooling

Ferrary¹

2010

Entrepreneurship Theory and Practice

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This article explores the rationale of syndications of institutional venture capital investors when they fund start-ups. There is an implicit labor division between institutional venture capital investors in which pure venture capital firms are in charge of converting investment uncertainty into risk by funding the seed stage of start-ups. The other investors invest in the following stages to sustain the start-ups' development. Relationships between investors are also handled following informal rules. Exchanges between institutional venture capital investors are based on a reciprocity that follows the informal principles of the gift exchange theory.

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“…It specializes in financing and nurturing companies at an early stage of development ('start-ups') that operate in high-tech industries. For these companies the expertise of the venture capitalist, its knowledge of markets and of the entrepreneurial process, and its network of contacts are most useful to help unfold their growth potential (Bottazzi, Da Rin and Hellmann (2005a), Gompers (1995), Hellmann and Puri (2002), and Lerner (1994Lerner ( , 1995). By contrast, when venture capital is applied to companies at a later stage of their growth, or in companies which operate in technologically mature industries, it has less of an opportunity to 'make a difference' (Michelacci and Suarez (2004)).…”

Section: Introductionmentioning

confidence: 99%

Public policy and the creation of active venture capital markets

Rin¹,

Nicodano²,

Sembenelli³

2006

Journal of Public Economics

305

180

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We assess the effectiveness of different public policy instruments for the creation of active venture capital markets. Our methodology focusses on 'innovation ratios,' defined to be the shares of high-tech, and of early stage, venture capital investments. We study a unique panel of data for 14 European countries between 1988 and 2001. We have several novel findings. First, we find no evidence of a shortage of supply of venture capital funds in Europe, a result which questions the effectiveness of the most widely used policy for fostering active venture capital markets. We also find other policies to be effective. In particular, the opening of stock markets targeted at entrepreneurial companies has a positive, large effect on the innovation ratios. Reductions in the corporate capital gains tax rate increase the share of both high-tech and early stage investment. A reduction in labor regulation also results in a higher share of high-tech investments. Finally, we find no evidence of an effect of increased public R&D spending on the innovation ratios.

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Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence

Cited by 1,701 publications

References 26 publications

Success in Israeli high-tech start-ups; Critical factors and process

Success in Israeli high-tech start-ups; Critical factors and process

Syndication of Venture Capital Investment: The Art of Resource Pooling

Public policy and the creation of active venture capital markets

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