How the nature of venture capitalists' involvement influences venture performance
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- Entrepreneurial success is being talked about with great recognition. However, the relationship between the entrepreneur and their investors during the development of the venture capital backed company is often sidelined. It is essential to point out the importance of this relationship, which can impact the success of a firm. At the end, it is a partnership, which could almost be considered as an alliance, where both parties have to respect each other. The mission of this paper is to shed light on this particular issue. Venture capitalists are hands-on investors, involved at any time in their portfolio companies. Their involvement is case by case based and varies from one firm to another. Both the entrepreneurs and the venture capitalists describe the investment as a partnership. They work on avenues and issues, which are either positive or negative. Consequently, investors’ activeness is not especially correlated to performance. An informal relationship is created and adapted to the needs of the venture capital backed companies. During the lifetime of the investment, some factors are key to facilitate the collaboration between both parties, trust, solid communication, comprehension, transparency and the respect of the different roles and contractual obligations. At the closing of the deal, both parties are well-aligned and share the same vision. However, their personalities and expectations differ and might lead to conflict. The impact conflict has on performance, differs from one company to another. It depends on the activity of the company, its external environment and three important factors; the size of the company, its development stage and the equity the investor owns. Finally, it is imperative to make sure that conflict does not stay unresolved and to reach a consensus quickly in order to avoid deadlock situations, which are the worst for a company.