Confounding market and hierarchy in venture capital governance: the Canadian immigrant investor program

Article Abstract:

Governance structure is a central figure of organization. Hybrid forms of organization - typified by governance structures from more than one organizational model - have become prominent features of the organizational landscape. This study examined the governance structure of a hybrid organizational arrangement created when a government programme was developed utilizing selected aspects of venture capitalist models of governance. Central findings include: designing appropriate governance structure is a key activity for new organizations; combining market and hierarchical forms of governance produces a confounding mix of rationalities, which is potentially dangerous for long-term survival; ambiguous control systems allow participants to pay selective attention to particular elements of governance structure; existing models of venture capital governance understate important social dimensions of governance - particularly the role of trust; hybrid organizations potentially remove the element of trust necessary for effective transactions. (Reprinted by permission of the publisher.)

Corporate governance, Industrial organization

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Risk avoidance strategies in venture capital markets

Article Abstract:

This research compares risk avoidance strategies employed by business angels and venture capital firm investors. It finds that differences in their approaches to evaluating risk lead them to hold predictably different views of the dangers of market and agency risk. The former tend to rely upon the entrepreneur to protect them from losses due to market risk. Consequently, they are more concerned with agency risk than market risk. The latter are more concerned with market risk because they have learned to protect themselves contractually from agency risk using boilerplate contractual terms and conditions. A likely result of their different approaches to avoiding risk is a segmentation of venture capital markets, which has important implications for both entrepreneurs and future research. (Reprinted by permission of the publisher.)

Investors, not elsewhere classified, Methods, Risk management, Capitalists and financiers

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Venture capitalist relationships in the deal structuring and post-investment stages of new firm creation

Article Abstract:

The deal structuring and post-investment stages of venture capital involvement in the managemement of a new entrepreneurship are examined. For the study, a case study is performed to investigate the relationship between between entrepreneurs and multiple co-investors in a new firm. Results show that the first major step in obtaining finance is accessing the venture capital network and that the best way to penetrate this network is through relationships and not business plans. In addition, it is found that venture capitalists set milestones and strict time-lines but actually have a hand in the numerous delays experienced by the startups. Existing models are discovered to be limited because they do not sufficiently describe the dynamics and iterativeness of activities within the deal structuring and post-investment stages.

Finance, Contracts, New business enterprises, Startups

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