‘Monitoring and value-add by venture capital firms in investee firms: The case of foreign VCs operating in India’
Kshitija Joshi, Deepak Chandrashekar, M.H. Bala SubrahmanyaJournal: International Journal of Entrepreneurial Venturing.
This paper attempts to explain the differing intensities of involvement by Venture Capital (VC) firms in the investee companies funded by them. To start with, the VC involvement intensity was quantified by developing an index and then the VC firms in the sample were divided into three distinct clusters (viz. Most Intensely Involved, Moderately Involved and Least Intensely Involved VC firms). Further, each of these clusters were profiled to identify the underlying factors driving the varying intensities of involvement. It was found that both – the need for monitoring (to overcome agency risks) and that for value-addition (complementing the skillsets of the start-up founding team) play an equally important role in determining the intensity of monitoring.
It was determined that Foreign VCs do not exhibit a uniform pattern with respect to their intensity of involvement. One set of Foreign VCs avoid early-stage and high-tech sector focused investments altogether. They prefer niche later stage ventures which they can help scale up given their resources and networks. Naturally, these VCs are less likely to be involved in the day-to-day affairs of the companies funded by them. The second type of Foreign VCs are those that tackle the agency risks associated with early-stage and high-tech venture investing head-on. These VCs are highly involved in the ventures funded by them. The two types of VCs possibly possess diverse kinds of resources. The former’s expertise lies in their financial muscle and international networks that facilitates scaling-up, the latter’s lies in their niche insights into nascent and futuristic technologies.
