IDEAS home Printed from https://ideas.repec.org/a/hig/fsight/v5y2011i4p66-76.html
   My bibliography  Save this article

The Internationalization of Venture Capital: Challenges and Opportunities

Author

Listed:
  • Thomas Gstraunthaler

    (Laboratory for Economics of Innovation,Institute for Statistical Studies and Economics of Knowledge, National Research University Higher School of Economics)

  • Galina Sagieva

    (Institute for Statistical Studies and Economics of Knowledge, National Research University — Higher School of Economics)

Abstract

This paper attempts to summarize and systematize the landscape of the global venture capital industry. It presents major basic business models and investment strategies, assesses the contribution of venture capital (VC) to economic growth, and the incentives and constraints for VC’s development, and it identifies research gaps in this area. Venture capital is often regarded as the only source of support for start-ups, particularly for those in high-tech innovative sectors. The authors explore the reasons for this. In contrast to more traditional investors, VCs provide targeted investment, and they maintain a long-term strategic focus. Financial capital is only one benefit they provide for entrepreneurs. They provide industry knowledge and social capital, often vital for success. Also, venture capital serves as an intermediation device in finding further finance. These benefits focus the attention of public administration in venture capital and pro-investment policies to build strength and assure future competitiveness. The authors conclude that governments can only do so much to spur creative thinking and entrepreneurial activities. Their support is best placed in education, oriented toward a culture which rewards competitive and entrepreneurial thinking. Results of such policy mature slowly but they can be vital. In conclusion, the authors point to the need to introduce new and refined research strategies promoting VC. One key focus to study venture capital is to understand how the industry itself is developing through its own drive. It would help to examine comparatively a country’s initiatives, which would allow policy makers to understand where the industry is going and how best to support or participate in growth. It would also allow distinguishing among segments of the venture capital market. Finally, further analysis of the VC industry should be conducted through the prism of its internationalization. Note: Downloadable document is in Russian.

Suggested Citation

  • Thomas Gstraunthaler & Galina Sagieva, 2011. "The Internationalization of Venture Capital: Challenges and Opportunities," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 5(4), pages 66-76.
  • Handle: RePEc:hig:fsight:v:5:y:2011:i:4:p:66-76
    as

    Download full text from publisher

    File URL: http://foresight-journal.hse.ru/data/2013/02/20/1306870158/7-Thomas-66-76.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    2. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    3. Manigart, Sophie & De Waele, Koen & Wright, Mike & Robbie, Ken & Desbrieres, Philippe & Sapienza, Harry J. & Beekman, Amy, 2002. "Determinants of required return in venture capital investments: a five-country study," Journal of Business Venturing, Elsevier, vol. 17(4), pages 291-312, July.
    4. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    5. Bat Batjargal, 2007. "Network triads: transitivity, referral and venture capital decisions in China and Russia," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(6), pages 998-1012, November.
    6. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    7. Seung Ho Park & Yadong Luo, 2001. "Guanxi and organizational dynamics: organizational networking in Chinese firms," Strategic Management Journal, Wiley Blackwell, vol. 22(5), pages 455-477, May.
    8. Jiing-Lih Farh & Anne S. Tsui & Katherine Xin & Bor-Shiuan Cheng, 1998. "The Influence of Relational Demography and Guanxi: The Chinese Case," Organization Science, INFORMS, vol. 9(4), pages 471-488, August.
    9. William L. Megginson, 2004. "Toward A Global Model Of Venture Capital?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(1), pages 89-107, January.
    10. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    11. Greenwald, Bruce & Stiglitz, Joseph E & Weiss, Andrew, 1984. "Informational Imperfections in the Capital Market and Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 74(2), pages 194-199, May.
    12. David B. Audretsch & Zoltan J. Acs, 2008. "New-Firm Startups, Technology, and Macroeconomic Fluctuations," Chapters, in: Entrepreneurship, Growth and Public Policy, chapter 16, pages 204-214, Edward Elgar Publishing.
    13. Mayer, Colin & Schoors, Koen & Yafeh, Yishay, 2005. "Sources of funds and investment activities of venture capital funds: evidence from Germany, Israel, Japan and the United Kingdom," Journal of Corporate Finance, Elsevier, vol. 11(3), pages 586-608, June.
    14. Markku Maula & Erkko Autio & Gordon Murray, 2003. "Prerequisites for the creation of social capital and subsequent knowledge acquisition in corporate venture capital," Venture Capital, Taylor & Francis Journals, vol. 5(2), pages 117-134, April.
    15. Judit Karsai & Mike Wright & Zbigniew Dudzinski & Jan Morovic, 1999. "Venture capital in transition economies: the cases of Hungary, Poland and Slovakia," Chapters, in: Mike Wright & Ken Robbie (ed.), Management Buy-outs and Venture Capital, chapter 4, Edward Elgar Publishing.
    16. Roure, Juan B. & Maidique, Modesto A., 1986. "Linking prefunding factors and high-technology venture success: An exploratory study," Journal of Business Venturing, Elsevier, vol. 1(3), pages 295-306.
    17. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    18. Henri Capron, 2007. "Politique de cohésion et développement régional," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(1), pages 113-133.
    19. Christopher B. Barry, 1994. "New Directions in Research on Venture Capital Finance," Financial Management, Financial Management Association, vol. 23(3), Fall.
    20. Günseli Baygan & Michael Freudenberg, 2000. "The Internationalisation of Venture Capital Activity in OECD Countries: Implications for Measurement and Policy," OECD Science, Technology and Industry Working Papers 2000/7, OECD Publishing.
    21. Henry R. Feeser & Gary E. Willard, 1990. "Founding strategy and performance: A comparison of high and low growth high tech firms," Strategic Management Journal, Wiley Blackwell, vol. 11(2), pages 87-98, February.
    22. 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.
    23. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    24. Roure, Juan B. & Keeley, Robert H., 1990. "Predictors of success in new technology based ventures," Journal of Business Venturing, Elsevier, vol. 5(4), pages 201-220, July.
    25. Ron Martin & Peter Sunley, 2002. "Taking risks in regions: the geographical anatomy of Europe's emerging venture capital market," Journal of Economic Geography, Oxford University Press, vol. 2(2), pages 121-150, April.
    26. Graham Hall & Ciwen Tu, 2003. "Venture capitalists and the decision to invest overseas," Venture Capital, Taylor & Francis Journals, vol. 5(2), pages 181-190, April.
    27. Jeng, Leslie A. & Wells, Philippe C., 2000. "The determinants of venture capital funding: evidence across countries," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 241-289, September.
    28. Judith Sedaitis, 1998. "The Alliances of Spin-Offs Versus Start-Ups: Social Ties in the Genesis of Post-Soviet Alliances," Organization Science, INFORMS, vol. 9(3), pages 368-381, June.
    29. Fernando Ordóñez & Nicolás E. Stier-Moses, 2010. "Wardrop Equilibria with Risk-Averse Users," Transportation Science, INFORMS, vol. 44(1), pages 63-86, February.
    30. Hyytinen, Ari & Pajarinen, Mika (ed.), . "Financial Systems and Firm Performance. Theoretical and Empirical Perspectives," ETLA B, The Research Institute of the Finnish Economy, number 200, June.
    31. N/A, 1991. "Appraisal," National Institute Economic Review, National Institute of Economic and Social Research, vol. 138(1), pages 3-5, November.
    32. Rah, Joongdoug & Jung, Kyungjin & Lee, Jinjoo, 1994. "Validation of the venture evaluation model in Korea," Journal of Business Venturing, Elsevier, vol. 9(6), pages 509-524, November.
    33. Dean A. Shepherd, 1999. "Venture Capitalists' Assessment of New Venture Survival," Management Science, INFORMS, vol. 45(5), pages 621-632, May.
    34. Mike Wright & Ken Robbie (ed.), 1999. "Management Buy-outs and Venture Capital," Books, Edward Elgar Publishing, number 1663.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    2. Cumming, Douglas & Johan, Sofia, 2007. "Regulatory harmonization and the development of private equity markets," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3218-3250, October.
    3. Balboa, Marina & Marti, Jose, 2007. "Factors that determine the reputation of private equity managers in developing markets," Journal of Business Venturing, Elsevier, vol. 22(4), pages 453-480, July.
    4. Josh Lerner & Joacim Tåg, 2013. "Institutions and venture capital," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(1), pages 153-182, February.
    5. Sofia Johan & Dorra Najar, 2011. "The Role of Law, Corruption and Culture in Investment Fund Manager Fees," Post-Print halshs-00639925, HAL.
    6. Johannes Wallmeroth & Peter Wirtz & Alexander Peter Groh, 2017. "Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review," Working Papers hal-01527999, HAL.
    7. Ge, Dingkun & Mahoney, James M. & Mahoney, Joseph T., 2005. "New Venture Valuation by Venture Capitalists: An Integrative Approach," Working Papers 05-0124, University of Illinois at Urbana-Champaign, College of Business.
    8. Douglas Cumming & Sofia Johan, 2006. "Provincial preferences in private equity," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 20(4), pages 369-398, December.
    9. Cumming, D. & Johan, S.A., 2005. "Is it the law or the lawyers? Investment fund covenants," Discussion Paper 2005-005, Tilburg University, Tilburg Law and Economic Center.
    10. John Armour & Douglas Cumming, 2006. "The legislative road to Silicon Valley," Oxford Economic Papers, Oxford University Press, vol. 58(4), pages 596-635, October.
    11. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    12. Sophie Manigart & Andy Lockett & Miguel Meuleman & Mike Wright & Hans Landström & Hans Bruining & Philippe Desbrières & Ulrich Hommel, 2006. "Venture Capitalists’ Decision to Syndicate," Entrepreneurship Theory and Practice, , vol. 30(2), pages 131-153, March.
    13. Alexander Peter Groh & Heinrich von Liechtenstein, 2011. "The First Step of the Capital Flow from Institutions to Entrepreneurs: the Criteria for Sorting Venture Capital Funds," European Financial Management, European Financial Management Association, vol. 17(3), pages 532-559, June.
    14. Kaplan, Steven N. & Martel, Frederic & Stromberg, Per, 2007. "How do legal differences and experience affect financial contracts?," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 273-311, July.
    15. Hyytinen, Ari & Pajarinen, Mika, 2001. "Financial Systems and Venture Capital in Nordic Countries: A comparative Study," Discussion Papers 774, The Research Institute of the Finnish Economy.
    16. William Kerr & Ramana Nanda, 2009. "Financing Constraints and Entrepreneurship," NBER Working Papers 15498, National Bureau of Economic Research, Inc.
    17. repec:dau:papers:123456789/5830 is not listed on IDEAS
    18. Douglas Cumming & Sofia Johan, 2006. "Is it the Law or the Lawyers? Investment Covenants around the World," European Financial Management, European Financial Management Association, vol. 12(4), pages 535-574, September.
    19. Allen N. Berger & Klaus Schaeck, 2011. "Small and Medium‐Sized Enterprises, Bank Relationship Strength, and the Use of Venture Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(2‐3), pages 461-490, March.
    20. Zhang, Jing & Pezeshkan, Amir, 2016. "Host country network, industry experience, and international alliance formation: Evidence from the venture capital industry," Journal of World Business, Elsevier, vol. 51(2), pages 264-277.
    21. Wang, Lanfang & Wang, Susheng, 2012. "Economic freedom and cross-border venture capital performance," Journal of Empirical Finance, Elsevier, vol. 19(1), pages 26-50.

    More about this item

    Keywords

    venture funding; venture capital; innovative company; innovation startup; capital market; venture investment; venture capitalist; venture fund; regional pattern;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hig:fsight:v:5:y:2011:i:4:p:66-76. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nataliya Gavrilicheva or Mikhail Salazkin (email available below). General contact details of provider: https://edirc.repec.org/data/hsecoru.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.