Venture capital : institutional allocation & post-investment control

• Main Author: Drewery, J. W.
• Published: University of Manchester 1974
• Subjects: 332
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.453995

The allocation of venture capital by U.K. financial institutions to entrepreneurs leading embryo companies was examined by field work carried out within the framework of a theoretical model. Venture capital was first defined as the financial support given to new, small companies, in a situation where the provider of funds could reasonably expect to be involved in the management of the business, either actively, or by giving frequent advice. As a result of preliminary interviews, a model of the relationships between entrepreneur, venture capitalist and sources of funds was built, and a questionnaire designed to explore the adequacy of the model in commenting on choice behaviour in this area of investment under uncertainty. Twenty eight venture capital institutions and thirteen of the entrepreneurs they supported were interviewed within the structure of the questionnaire. An attempt was made, by the use of condensed case studies, or 'scenarios' to reveal the aspects of an investment onto which expectations were focussed. This, together with an examination of selection criteria employed to evaluate proposals, was used to comment on the influences at work on venture capitalists' choice behaviour. The results of the empirical work led to the classification of venture capitalists into three groups. This taxonomy was used as a thread throughout the study. Study of the relationship be~ entrepreneur and capitalist, and the post-investment controls imposed led to the further classification of investors into "managers" (those who managed projects subsequent to investing) and "gamblers" (those who invested and awaited results). The theoretical model was found to provide a good description of the influences at work on choice behaviour, and to be of more immediate relevance than existing theories of uncertainty