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Venture capital as human resource management

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Author Info
Carvalho, Antonio Gledson de
Calomiris, Charles W.
Matos, Joao Amaro de

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Abstract

Part of the way venture capitalists add value to portfolio firms is by obtaining and transferring information about senior managers across firms over time. Information transfer occurs on a significant scale and takes place both among a single venture capitalists portfolio firms and between different venture capitalists firms via a network of venture capitalists, which venture capitalists use to locate and relocate managers. We collect and analyze survey data on the operation of this human resource network. Theoretical and empirical analyses indicate that cross-sectional differences among portfolio firms are associated with differences in the intensity with which venture capitalists network. The observable factors relevant in explaining the intensity with which venture capitalists network include: 1) the value of the information transmitted though the network, 2) the riskiness of the activities of the portfolio firms, 3) the size of the venture capital fund, 4) the degree of difficulty in enticing executives to manage portfolio firms, and 5) the reputation of the venture capitalist for successfully recycling managers. We show that each of these factors reflects the costs and benefits to venture capitalists of participating in the network.

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Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp470.

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Length: 39 pages
Date of creation: 2005
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Handle: RePEc:unl:unlfep:wp470

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  1. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March. [Downloadable!] (restricted)
  2. Rafael Repullo & Javier Suarez, 2004. "Venture Capital Finance: A Security Design Approach," Review of Finance, Springer, vol. 8(1), pages 75-108. [Downloadable!]
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  3. Cornelli, F. & Yosha, O., 1997. "Stage Financing and the Role of Convertible Debt," Papers 23-97, Tel Aviv.
  4. Chan, Yuk-Shee, 1983. " On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information," Journal of Finance, American Finance Association, vol. 38(5), pages 1543-68, December. [Downloadable!] (restricted)
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  5. Cornelli, Francesca & Yosha, Oved, 1997. "Stage Financing and the Role of Convertible Debt," CEPR Discussion Papers 1735, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March. [Downloadable!] (restricted)
  7. Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, vol. 23(3), Fall.
  8. Admati, Anat R & Pfleiderer, Paul, 1994. " Robust Financial Contracting and the Role of Venture Capitalists," Journal of Finance, American Finance Association, vol. 49(2), pages 371-402, June. [Downloadable!] (restricted)
  9. Leslie M. Marx, 1998. "Efficient venture capital financing combining debt and equity," Review of Economic Design, Springer, vol. 3(4), pages 371-387. [Downloadable!] (restricted)
  10. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, 02. [Downloadable!] (restricted)
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  11. Christopher B. Barry, 1994. "New Directions in Research on Venture Capital Finance," Financial Management, Financial Management Association, vol. 23(3), Fall.
  12. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October. [Downloadable!] (restricted)
  13. David H. Hsu, 2004. "What Do Entrepreneurs Pay for Venture Capital Affiliation?," Journal of Finance, American Finance Association, vol. 59(4), pages 1805-1844, 08. [Downloadable!] (restricted)
  14. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)
  15. Thomas Hellmann, 1998. "The Allocation of Control Rights in Venture Capital Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 57-76, Spring. [Downloadable!] (restricted)
  16. Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-89, December. [Downloadable!] (restricted)
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  1. SAU, Lino, 2007. "New Pecking Order Financing for Innovative Firms: an Overview," MPRA Paper 3659, University Library of Munich, Germany. [Downloadable!]
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