• Escalation of commitment in venture capital decision making: Differentiating between domestic and international investors

      Devigne, David; Manigart, Sophie; Wright, Mike (Journal of Business Venturing, 2016)
      Drawing upon an escalation of commitment framework, this study investigates how differences between cross-border and domestic venture capital investors in emotional, social, and institutional factors affect their decision to terminate an unsuccessful investment. We track the exit outcome of 1060 venture capital investments in 684 European technology companies. Results show that domestic investors have a high tendency to escalate their commitment to a failing course of action, while cross-border investors terminate their investments efficiently, even when investing through a local branch. This is explained by cross-border investors having a lower social and emotional involvement with the project and a lower embeddedness in the local economic and social environment, decreasing individual decision biases. Further, they are affected to a lower extent by normative pressures to further invest from their co-investment network. Local branches of cross-border investors are also shielded from escalation of commitment. We conjecture that their international investment committee acts as an organizational safeguard against individual decision biases. Domestic investors may hence benefit from mimicking the behavior of cross-border investors.
    • Government as fund-of-fund and VC fund sponsors: Effect on employment in portfolio companies

      Manigart, Sophie; Standaert, Thomas (Small Business Economics, 2018)
      Governments around the world have set up fund-of-fund programs to increase the supply of venture capital financing to young growth-oriented firms. In these programs, a government fund-of-fund acts as limited partner in a venture capital fund. The venture capital investment process is hereby delegated to external investors, which were selected by the government fund-of-fund. We investigate employment growth in 108 portfolio companies that benefited from the ARKimedes fund-of-fund in Flanders. Accounting for the heterogeneity in the types of venture capital investors managing hybrid funds, and the associated goal diversity and resource endowments, we find that portfolio companies backed by hybrid independent venture capital funds show greater employment growth than those backed by hybrid captive or hybrid government venture capital funds. This finding is relevant because it indicates that the financial objectives of hybrid independent venture capital funds are highly compatible with the government's objective of employment growth, as providing companies with superior monitoring and value adding services with the objective of realizing a successful exit creates employment in the process.
    • Institutional frameworks, venture capital and the financing of European new technology-based firms

      Vanacker, Tom; Heughebaert, Andy; Manigart, Sophie (Corporate Governance: An International Review, 2014)
      This paper provides an analysis of the long- and short-run determinants of domestic bank lending to the private sector in eleven Central, Eastern and Southeastern European (CESEE) countries. We identify regime shifts for the observation period of 1997 to 2009, and the resulting subperiods are characterized by a different impact of the credit growth determinants. Estimating a credit demand equation as the long-term relation, we find – for most countries – a cointegration relationship with economic activity. We then examine the shortrun dynamics by applying both a linear and a nonlinear (Markov-switching) error correction model. While there is a significant correlation between credit growth and supply factors, namely bank deposits and banks’ equity, its impact differs across the subperiods. Identified regime switches in the short-run relation are driven primarily by differences in the credit supply factors rather than by the adjustment toward the credit equilibrium as the error correction coefficients show only slight cross-regime differences. In terms of regime switching, we distinguish between two groups of countries: those with one dominant regime, which is only briefly interrupted by a second one, and those with two equally pronounced regimes. In the latter group, a marked switch occurred just before or when the global crisis hit the CESEE region in the latter part of 2008. This regime shift is associated with a decreased correlation between deposit and credit growth.
    • Is venture capital socially responsible? Exploring the imprinting effect of VC funding on CSR practices

      Alakent, Ekin; Goktan, Sinan M.; Khoury, Theodore Andrew (Journal of Business Venturing, 2020)
      We study how corporate social responsibility (CSR) is guided by ownership history, specifically whether a company receives venture capital (VC) funding or not. We argue that companies that receive VC funding are less likely to adopt CSR practices due to unique VC imprinting and that temporal and investment orientation moderate this relationship. We find that VC-backed companies have poorer CSR records, which do improve over time, but at a comparatively slower rate than non-VC-backed companies. However, when VC-backed companies receive funding from VC firms that have a responsible investment orientation and a broader stakeholder view, their CSR records are significantly better. This study contributes to our understanding of imprinting boundaries and related repercussions in stakeholder management strategies.
    • New directions in entrepreneurial finance

      Cumming, Douglas; Deloof, Marc; Manigart, Sophie; Wright, Mike (Journal of Banking and Finance, 2019)
      Entrepreneurial finance is a distinctive aspect of corporate finance, notably with respect to informational asymmetries and investor involvement in portfolio companies. Entrepreneurial finance research has explored four levels of analysis: the entrepreneur or entrepreneurial firm, the organization providing finance to the entrepreneurs, the organizations providing funds to these organizations, and the region or country in which the entrepreneurial firms or investors are established. We discuss recent developments in forms of entrepreneurial finance. We summarize the contributions of the papers published in this issue on entrepreneurial finance at different points in the life cycle, including work on trade credit, debt finance, micro-cap IPOs, venture capital, and angel finance. Also, we highlight avenues for future research focusing on funding gaps, accelerators, crowdfunding, secondary buyouts, boards, and exits.
    • Relocation to get venture capital: A resource dependence perspective

      De Prijcker, Sofie; Manigart, Sophie; Collewaert, Veroniek; Vanacker, Tom (Entrepreneurship: Theory and Practice, 2019)
      Using a resource dependence perspective, we theorize and show that non-venture-capital-backed ventures founded in U.S. states with a lower availability of venture capital (VC) are more likely to relocate to California (CA) or Massachusetts (MA)—the two VC-richest states—compared to ventures founded in states with a greater availability of VC. Moreover, controlling for self-selection, ventures that relocate to CA or MA subsequently have a greater probability of attracting initial VC compared to ventures that stay in their home state. We discuss the implications for theory, future research, and practice.
    • Take the money or run? Investors' ethical reputation and entrepreneurs' willingness to partner

      Drover, Will; Wood, Matthew; Fassin, Yves (Journal of Business Venturing, 2014)
      Drawing on the multi-principal–agent perspective, this research models the influence of venture capitalists' reputation for ethical behavior on entrepreneurs' willingness to partner decisions. We test our model using a two-study design. Study one, a conjoint experiment, revealed that explicit knowledge of past unethical behavior negatively affects entrepreneurs' willingness to partner. Interaction effects revealed that factors previously shown to influence the entrepreneurs' evaluations—investor value-add and investment track record—become largely contingent upon and often subjugated by investors' ethical reputation. Study two, a traditional between-subjects scenario experiment, revealed that when entrepreneurs develop their own perceptions about the ethicality of an investor's prior behaviors, the ethical dimension remains highly influential. Further, we find that as the consequences of rejecting funding become more severe (e.g., possible bankruptcy), entrepreneurs become increasingly willing to partner with unethical investors. We also find that high fear of failure entrepreneurs are less willing to partner with unethical investors than their low fear of failure counterparts.
    • The conflict potential of the entrepreneur's decision-making style in the entrepreneur-investor relationship

      Appelhoff, Daniel; Mauer, René; Collewaert, Veroniek; Brettel, M. (International Entrepreneurship and Management Journal, 2016)
      While prior research has indicated the importance of conflicts between investors and entrepreneurs, little is known about their causes. We use theory on entrepreneurial decision-making to examine the impact of a founding team's causal versus effectual decision style on the level of perceived task conflict that founders experience with their venture capitalists. Based on a sample of 141 German ventures, we find that a founding team perceives fewer conflicts when following the causal principle of overcoming the unexpected and the effectual principle of affordable loss.
    • The determinants of venture capital across Europe - Evidence across countries

      Gomes Santana Félix, Elisabete; Pacheco Pires, Cesaltina; Gulamhussen, Azzim (Journal of Financial Services Research, 2012)
      This article analyses the determinants of European venture capital activity. The main novelty of our work is in accounting for the idiosyncrasies of the European venture capital market. In particular, we investigate whether the size of the merger and acquisition market (M&A) is important in explaining venture capital. Moreover, our work is the first that analyses the impact of the degree of information asymmetry at the macro level, the direct impact of the level of entrepreneurial activity and the impact of the unemployment rate on venture capital activity. We use aggregate data from 23 European countries for the period 1998–2003 to estimate panel data models with fixed and random effects. Our results reveal that the size of the M&A market and the market-to-book ratio have a positive impact on venture capital activity whereas the unemployment rate influences the venture capital market negatively. These results highlight the importance of the exit environment and of the degree of asymmetric information for the venture capital market.
    • The relationship between slack resources and the performance of entrepreneurial firms: the role of venture capital and angel investors

      Vanacker, Tom; Collewaert, Veroniek; Paeleman, Ine (Journal of Management Studies, 2013)
      The impact of minority dissent on group-level outcomes is explained in the current literature by two opposing mechanisms: first, through cognitive gains due to a profound change induced by minority members in the individual cognitions of the majority members, and second, through socio-affective process losses due to social rejection and relationship conflict. Groups are most effective in information processing if they succeed in solving this opposition and reduce the negative impact of process losses. The present study addresses this opposition using an experimental design in which we crossed minority dissent (presence vs. absence of minority dissent) with change in membership (groups with vs. groups without change in membership) to determine which condition leads to the highest group cognitive complexity. Our results show that groups with a history of dissent and where the deviant left the group have the highest cognitive complexity, followed by groups that experienced dissent and where no change in group membership took place. The groups without a history of dissent have the lowest cognitive complexity.
    • The state of corporate venturing: insights from a global study

      Battistini, Boris; Hacklin, Fredrik; Baschera, Pius (Research-Technology Management, 2013)
      Corporate venturing is on the rise. The growing intensity of corporate venturing activities presents extraordinary opportunities for corporations to redefine their innovation and investment practices. While corporate venturing has received considerable research attention, previous studies have often insufficiently captured the evolution of corporate venturing activities. This article presents the key insights of a global study of leading corporate venture units and offers a benchmark against which to compare current and future corporate venturing initiatives. We discuss the state of corporate venturing activities and practices at leading global corporations and outline the distinctive features of today's venture landscape.
    • Venture capital internationalization: Synthesis and future research directions

      Devigne, David; Manigart, Sophie; Vanacker, Tom; Mulier, Klaas (Journal of Economic Surveys, 2018)
      Research on venture capital (VC) internationalization has expanded rapidly over the last decade. This paper reviews the extant literature on VC internationalization and highlights gaps in our knowledge. We identify three major research streams within this literature, which revolve around the following questions: (1) which VC firms invest across borders and what countries do they target; (2) how do VC firms address liabilities of foreign investing; and (3) what are the real effects of international VC investments? We provide an overview of the contributions in these research streams, discuss the role of public policy, and suggest avenues for future research. Specifically, we call for a deeper understanding of: (1) the functioning and impact of VC firms’ modes of internationalization; (2) micro-level processes such as the functioning and decision making of international investment committees, or the development of international human and social capital; (3) the role of country institutions in VC internationalization and its real effects; and (4) the interplay of international VC with alternative financing sources.
    • Venture capital winners: A configurational approach to high venture capital-backed firm growth

      Manigart, Sophie; Standaert, Thomas; Knockaert, Mirjam (British Journal of Management, 2021)
      The positive effect of venture capital (VC) on firm growth has been widely documented. However, there exists a large variation in growth, with only a small number of VC-backed firms reaching a substantial size. Prior studies have linked the variation in growth of VC-backed firms to differences in resource endowments of the entrepreneurial top management team, the firm or the venture capitalist, without considering their potentially complex interaction. In addition, the literature has taken strong growth aspirations in VC-backed firms as a given, without examining their potential variation, and its potential implications. Therefore, this study aims at examining which configurations of resource portfolios and growth aspirations lead to high VC-backed firm growth. In order to do so, it takes an inductive, theory-building approach, and builds upon fuzzy-set qualitative comparative analysis (fsQCA). Our results show that strong growth aspirations in the entrepreneurial top management team are a necessary condition for high VC-backed firm growth. Furthermore, we identify four configurations which, in combination with these aspirations, lead to high VC-backed firm growth.
    • Venture capital, credit, and fintech start-up formation: A cross-country study

      Kolokas, Dimitrios; Vanacker, Tom; Veredas, David; Zahra, Shaker (Entrepreneurship Theory and Practice, 2020)
      Growing FinTech entrepreneurship is a recent global phenomenon. Drawing on the national innovation systems framework, we examine how countries’ venture capital (VC) and credit markets differently affect FinTech entrepreneurship across countries. We argue that with their established and globally diffused norms and practices, VC investors—but not banks—require a critical mass of FinTech entrepreneurship in a country to more positively influence FinTech entrepreneurship. Moreover, we argue that VC and credit markets are substitutes, especially in countries with more FinTech entrepreneurship. Using quantile regressions on data from 53 countries, we find support for our hypotheses.
    • Venturing into the unknown with strangers: Substitutes of relational embeddedness in cross-border partner selection in venture capital syndicates

      Meuleman, Miguel; Jääskeläinen, Mikko; Maula, Markku V.J.; Wright, Mike (Journal of Business Venturing, 2017)
      Syndicating with prior partners through relationally embedded ties may be widespread, but not always optimal when investing across borders especially if few prior partners operate in the focal market. However, the substitutes of relational embeddedness for trust creation in cross-border partner selection are poorly understood. We develop and test a model of how relational embeddedness interacts with structural embeddedness and legal and normative institutions and how relational embeddedness and these three substitutes jointly affect cross-border partner selection in venture capital syndicates. We test the hypotheses in the context of cross-border venture capital syndication in 12 European countries. Our findings based on a case-control analysis suggest that although relational embeddedness is a key driver of future partnering, structural embeddedness and trust generating institutions such as high quality legal frameworks and industry associations facilitate cross-border partnering and diminish the need to rely on relationally embedded ties in cross-border partner selection.