Venture CapitalContents
TOC o “1-3” h z u HYPERLINK l “_Toc377995340” Venture Capital PAGEREF _Toc377995340 h 1
HYPERLINK l “_Toc377995341” 2.1 Venture Capital and Corporate Venture Capital PAGEREF _Toc377995341 h 1
HYPERLINK l “_Toc377995342” 3 Analysis of Investment Opportunities in Venture Capital PAGEREF _Toc377995342 h 2
HYPERLINK l “_Toc377995343” 3.1Track Record / Serial Entrepreneurs PAGEREF _Toc377995343 h 2
HYPERLINK l “_Toc377995344” 3.2“One Man Show” versus Complemented Team PAGEREF _Toc377995344 h 3
HYPERLINK l “_Toc377995345” 3.3Gender PAGEREF _Toc377995345 h 5
2.1 Venture Capital and Corporate Venture CapitalVenture capital entails the provision of unique financial services which are in several ways different from other service products. Equity (which is the key product) involves a long-term commitment by the providers which offers him the chance to take part in monitoring, directing, and running the firm frequently extending to the board representation. The venture capitalist acts in some instances as the intermediary (Murray and Robbie, 1992). Venture capital funds usually finance novel, high-potential-growth and high-risk companies. The funds may have technical and managerial expertise, and thus, favor active ownership in the firms they are interested in investing (Olsson, Frydenberg, Jakobsen, and Jessen, 2010).
Venture capitalists function as the investment professionals and they are the executives in the company. Limited partners are the investors in the venture capital funds. Limited partners are either institutions or wealthy individuals with accessible capital. Venture capitalists support their investment decisions on three main elements, business idea, management team, and the potential return on investment (Olsson et al., 2010). It is also important to note that venture capital companies are distinguished by their financial resources, the quantity of staff resources dedicated to each investment, venture stage, size of investment, and the level of vertical integration. In the selection process, venture capitalists investigate a number of things. First, they study the general factors linked to the potential investments such as market growth and size, entry barriers, legal issues, contractual restrictions, patents, and competitive advantages. The venture capitalists then assess the management teams of the firms they desire to invest in (Olsson et al., 2010; Hall and Hofer, 1993).
On the other hand, corporate venture capital (CVC) is defined as a program in established companies that conduct investments in entrepreneurial firms. Generally, CVC generates financial investment (like an independent venture capital) and gets a minority equity or venture in the entrepreneurial firm. A CVC can facilitate investment of any kind and other resources into the portfolio firm. As a result, the company gains an opening on both novel technologies and strategically complementary corporations that may eventually become strategic partners. The CVC programs generally aim at building the relations with the entrepreneurial venture community. They learn of the business and technology directions of strategic interest and make investments that develop new strategic opportunities or chances for the company (MacMilan, Roberts, Livada, and Wang, 2008).
Through the interaction with the company’s business operating units and R & D, the CVC program recognizes the operating unit’s priorities and interests. Capital for the CVC can be sourced from the corporate level of the main or parent firm, external investment partners, or even the business units in the parent company. In most cases, the source of capital for the CVCs comes from the corporate headquarters. In other cases, the CVC can have a limited partner investment relation with more than one external independent venture capital funds (MacMilan et al., 2008).
3 Analysis of Investment Opportunities in Venture CapitalVenture capital presents a rare type of business to investors in that the high specificity attached to the managerial functionality as defined by involved risks tends to attract high end expertise. In such a scenario, management and operation staff expected to implement the project represents the best preparedness needs and the entrepreneurs are awake to these facts. As elaborated below, attracting the best resources in terms of expertise and funding, venture capital opportunities do not easily present to ordinary businesspersons. As illustrated, a highly form of business network that supports venture capital projects makes it unique for exploitation by well linked investors, who incidentally have a track record of success in investment (Patzelt, 2010). Most capital venture businesses follow a strict implementation plans that require specific funding and management. The following section presents some of these details regarding the nature of business opportunity and the beneficiaries of such sensitive investment projects.
3.1Track Record / Serial EntrepreneursSocial capital is an intangible asset available to entrepreneurs in terms of their ability to mobilize funds and investment into specific projects by virtual of having a social connection with other entrepreneurs. In view of the ability of social capital to generate funds for a new venture, entrepreneurs find it easier to use existing network to find investors. Entrepreneurs have been characterized by the inherent habit they manifest to the effect that they follow success track in order to invest their money. It implies that the most successful companies attract more seasoned entrepreneurs than those companies without a clear history of extraordinary performance. In view of the need for investors to follow a certain performance cue to generate enough confidence in their investment decisions, a common pattern of risk avoidance is observed. The more potential a company possesses in terms of revenue generation, the more likely that it will attract prominent entrepreneurs for investment (Frydenberg, 2010). Social capital potential of the entrepreneurial fraternity implies that the decision to invest in a company employs a certain network of investment.
It is easier for persons within closer circles of an investor to obtain access to a company’s investment opportunity than for people without a relationship at all with the entrepreneur in question (Hackbert, 2006). The existence of a network of investment gurus leaves investment opportunities accessible to the members of the network, which eventually leaves a track record. Social capital in this sense implies that the ability of an investment project to gather resources of potential investors is dependent on the popularity of the project leaders. According to Hackbert (2006), it is easier for a network of seasoned investors to influence entrepreneurial projects among themselves since the social capital within the network makes it easy to find capital. Investors with an extensive social capital generation potential are therefore likely to attract a bigger pool of investors into a project forwarded to the network, when compared to those entrepreneurs with poor social capital connection.
Entrepreneurial culture entails diversification and spreading of risk, which defines business logics in making investment decisions. It therefore implies that entrepreneurs spread out their investment risks in different directions, to ensure that their eggs are not placed in one basket. Entrepreneurs in the networks highlighted above support each other through the mere intention of making an investment, which sends positive signals of confidence (Frydenberg, 2010). The confidence building gesture leaves a trail of investment opportunities highly accessible to the class of successful entrepreneurs. This apparent behavior of serial investments in successful businesses attracts the attention of other relatively small investors to support the investment.
3.2“One Man Show” versus Complemented TeamInternal management attributes of the venture capital define the amount of attention likely to be generated when calls for new projects emerge to entrepreneurs. Success attachment to the management functionality appears inseparable from confidence associated with ease of taking up an investment opportunity. The management needs of a capital venture under the high specificity attributes of such projects highlight the importance of individual CEO’s performance and attributes for the overall success of the project (Shepherd, 1999). Whereas the sensitivity of the involved business in venture capitals tends to favor extensive cooperation and integration of resources, the performance of one individual at the helm can also determine the performance of the investment. Desired attributes of the individual CEO taking charge of the venture capital would present the company with success potential than a faulty team does to an organization. It implies that attributes of the CEO under variables of human capital could deliver results to the venture capital if the appropriate skills and knowledge are provided (Patzel, 2010).
In terms of the effective education demands in a modern firm, exceptional training and academic proficiency would enable the ideal candidate for a post of the CEO to deliver results in a venture capital. Founder-based firm-specific knowledge and familiarity with the industry needs may favor an individual to deliver results in a venture capital project (Madsen, Neergaard and Ulhøi, 2003). Within the overall business opportunity of the modern firm under globalization, an ideal candidate for the post of the CEO must appreciate the forces of the international space and offer appropriate shield. Despite the fact that the operations of the new establishment may need to be localized at some level, the forces of the international business space and market present the modern firm with realities that force consideration of the global platform in decision-making (Awe, 2000). Due to the risky nature of the business engagements under such a scenario, it is increasingly becoming difficult for the overall decision making to be highly centralized to one individual. Risk emanating from external forces makes it unbearable for a single individual to deliver flawless results.
Modern businesses prefer the team model of management as opposed to the one man show. With a more diversified approach to deliver corporate success in the technology age, focus on human resource cooperation in achieving results seems to form the foundation of the modern firm. Management and ordinary operations down the cadre of corporate staff indicate that the more decentralized duties are, the more efficient firms are likely to emerge. Continued success around the teams in modern day firms shows the sustainability of the organization even in the absence of the top manager, which is a strength in the long term (Madsen, Neergaard and Ulhøi, 2003). Despite the availability of difficulties in running efficient teams due to diverse personalities among staff members, the management of risks involved in the default of a single individual is higher when compared to a team member’s mistake. The efficiency of the team platform could be enhanced by placing an influential CEO at the helm of overall management for the Venture capital.
3.3GenderInstitutional rules define the structure of human interaction both in the formal and informal settings. There are three pillars of institutions that function in the workplace; the regulative, cultural-cognitive, and normative. In the regulatory environment, formal and enforced processes for capital investments in the business are delivered. The informal and highly structured venture capital (VC) investment process offers an additional framework for the entrepreneur and VC interaction as the deals are finalized. In both frames, the persons are subjected to cultural-cognitive norms as they consider and take the necessary action. It is important to note that they are affected both consciously and unconsciously (Kolb, Maxfield, and Nelson, 2009; Scott, 2008).
It is thought that men and women approach the securing of venture funds and entrepreneurship differently. The most common debate for between the group differences is that women tend to emphasize more of support and nurturance in their relationships. This argument is based on the mothering and social development roles that women generally play. On the other hand, men are groomed for individualism and separation and individualism. Men’s behaviors are presumably suited to the entrepreneur image of an individual who is keen to make tough decisions about the venture (Kolb, Maxfield, and Nelson, 2009; Bird and Brush, 2002).
In the world of VC, the principle for businesses that are optimal for investment indicates that the businesses that men have founded in the United State’s VC industry appeared during the 1970s. Early VCs were generally successful entrepreneurs who had invested and began to use their expertise on investment. They invested in businesses they were aware of and had the experience of running them. In other words, the method used to judge the investment ability are gendered and have been ordered hierarchically. This means that a business that does not appear to meet the normative criteria would have the challenge of attracting the investors’ interests (Kolb, Maxfield, and Nelson, 2009; Ahl, 2006).
Social constructions around gender hinder effective performance of women in venture capital projects as it does in several other socioeconomic and political encounters. Women investors capable of subduing the inherent discrimination that human communities around the world have are rare. In order for the business fraternity to report appropriate outcomes in assisting female entrepreneurs to emerge as competent and equal players, it is imperative that sensitization of the communities and empowerment corms part of the social culture. Affirmative action around the world provides sufficient ground for women entrepreneurs to amass confidence and rise to positions of business responsibility than ever before.
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