Venture capitalist governance and value added in four countries

Research has identified the means by which venture capitalists (VCs) in the United States add value to their portfolio firms beyond money. The venture capital industry has expanded into other nations, and this study explores the relations of venture capitalists with their portfolio firms in the three largest European venture capital markets –- the United Kingdom, France and the Netherlands. Roles for VCs are categorized as strategic (e.g., providing business advice), interpersonal (e.g., mentoring the CEO), and networking (providing links to other resources). Utilizing agency and organization theory perspectives, this study analyzes governance and decision making issues from the viewpoints of the VCs. Perceived risks and uncertainty are hypothesized to increase the level of interaction between CEO and VC, and to increase the value added by such interaction. Interviews and surveys of venture capitalists and the CEOs of their portfolio firms were conducted in the US in 1987-1988. In 1982, a similar questionnaire was administered to VCs in the three European countries. Both similarities and differences were found among the four countries. In the US and the UK, for example, VCs interact more frequently with their portfolio firms, to monitor and assist them, than do those in France and the Netherlands. However, in all four countries VCs rate the greatest value added as strategic, and the least as networking. The situations in which VCs are likely to provide assistance are also examined. Further research is needed on the interaction between formal governance and more informal oversight.

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