• International venture capital investors and their portfolio companies in Europe

      Devigne, David (2013)
      Many companies including Apple, Facebook, Google, Microsoft and Starbucks may not have existed, or may not have developed to the same level and size they have without venture capital (VC) funding. VC investments are in essence long-term, illiquid, high-risk, hands-on, privately held, minority equity investments in high-growth-potential companies initiated and managed by professional investors. While these specific characteristics explain the benefits of VC’s proximity to portfolio companies (PCs), paradoxically the fraction of non-domestic investments has been increasing significantly in the last two decades. The increasing occurrence and disadvantages of investing across borders hence raises the question of how international VC firms manage the additional difficulties and what their impact is on PCs. The focus of my dissertation lies on the differential impact of VC origin (i.e. cross-border, branch and domestic VC firms) in three main aspects of the VC investment cycle. In a first step, VC firms carefully select potential investment targets based upon the future prospects. Second, VC firms typically do not only provide financial resources but also engage in time consuming post-investment monitoring and value adding activities. Finally, in contrast to other investors, VC firms are not interested in taking permanent equity positions in their PCs. Instead, they exit their investments after a five to seven year holding period. In a first study I examine the impact of VC origin on the mutual matching decision combining preferences of both investors (i.e. supply side) and entrepreneurs (i.e. demand side). From a supply perspective, results show that cross-border VC firms have a higher probability to invest with local investors, larger investment syndicates and more experienced investors. We further demonstrate that investing through a local branch allows foreign VC firms to exhibit the same investment behaviour as domestic VC firms. These results thereby exhibit that local and more resourceful co-investors or establishing a local presence mitigate the disadvantages linked to foreign investing. From a demand perspective, findings show that less developed companies have a higher probability to match with domestic VC. Moreover, seed stage companies in which only cross-border VC firms co-invest have a higher probability to attract a local VC firm as opposed to an additional cross-border VC firm. These results display that entrepreneurs dynamically assess their companies’ resource gaps and consequently target VC investors with specific geographic origins based upon the required resources. My second study concentrates on the role of domestic and cross-border VC in PCs’ growth. Findings demonstrate that companies initially backed by domestic VC investors exhibit higher growth in the short term compared to companies backed by cross-border investors. In contrast, companies initially backed by cross-border VC investors exhibit higher growth in the medium term. Finally, companies that are initially funded by a syndicate comprising both domestic and cross-border VC investors exhibit the highest growth. Overall, this study provides a more fine-grained understanding of the role that domestic and cross-border VC investors can play as their PCs grow and thereby require different resources or capabilities over time. Finally, in a third study I analyse how cross-border, branch and domestic VC firms behave when PCs do not meet initial expectations. Results show that domestic investors have a high tendency to escalate their commitment to a failing course of action. In contrast, cross-border investors terminate their investments efficiently, even when investing through a local branch. This is explained by cross-border investors having more limited access to soft information, a lower social involvement with the project and a lower embeddedness in the local economic and social environment, which are all factors that contribute to lower escalation of commitment. Local branches of cross-border investors are further shielded from escalation of commitment through structural safeguards. Domestic investors may hence benefit from mimicking cross-border investors’ behaviour.
    • A social-psychological perspective on angel investment decision-making

      Imhof, Zoë (2020)
      Academics and practitioners have all often claimed that acquiring resources is a challenging task that entrepreneurs need to overcome to develop their ventures (e.g., Stinchcombe, 1965). This challenge is particularly acute for young, high-growth potential ventures because they often involve unproven technologies or business models (e.g., Berger & Udell, 1998). Angel investors are a primary source of early-stage (i.e., seed and startup) risk capital available to such entrepreneurs, and tend to come in after entrepreneurs have depleted their personal savings and money from family and friends (e.g., Drover et al., 2017). Many highly successful companies such as Zoom, Airbnb, Google, Starbucks, The Body Shop, Innocent Smoothies, and Showpad have all been backed by angels. The pitch represents a critical first step towards raising interest among angel investors and securing much-needed funding (e.g., Chen et al., 2009; Kanze, Huang, Conley, & Higgins, 2018; Maxwell, Jeffrey, & Lévesque, 2011). The pitch is a decisive moment in entrepreneurs' quest for money as investors reject 70 to 90 percent of pitches (e.g., Chen et al., 2009; Huang & Pearce, 2015; Maxwell et al., 2011). This dissertation contributes to the growing stream of research that examines angels' investment decision-making. By drawing on theories from social psychology literature, this dissertation seeks to offer a more relational perspective to explore how angels judge entrepreneurs during their pitch and how angel and entrepreneur interact with each other during their first face-to-face meeting. The first paper of this dissertation focuses on the impact of angel's judgment about the entrepreneur on their decision to invest at the end of the pitching phase (i.e., after Q&A session), the second paper focuses on explaining why angels lose interest to invest within the pitching phase (from after the presentation to after the Q&A session) and the third paper focuses on the social interaction between entrepreneur and angel during the Q&A session. More specifically, building on social judgment research and resource allocation theory, the first study explores entrepreneur's warmth and competence as two critical dimensions along which angels perceive and judge entrepreneurs when making investment decisions and how angels' mental resources explain the interplay between perceived warmth, perceived competence and pitch sequence. The second study builds on the Elaboration Likelihood Model as dual-process theory to examine the impact of angel's experience and entrepreneur's verbal and nonverbal behavior on angel's likelihood to lose interest to invest from the presentation to after the Q&A session. In the third study examines the impact of angel's power words when asking questions on entrepreneur's answers.