Effect of venture capital investment horizon on new product development: Evidence from the medical device sector

Moonsik Shin, Joonhyung Bae and Umit Ozmel

Journal of Business Venturing, 2025, vol. 40, issue 1

Abstract: Drawing on entrepreneurial financing literature, we investigate how venture capital (VC) firms' investment horizons affect their ventures' product quality problems. We argue that when a VC firm has a short investment horizon, it may guide its portfolio companies to develop new products fast to increase the likelihood of successful exits. However, this deliberate effort may act as a double-edged sword for ventures. That is, VC firms' guidance on product commercialization could inadvertently expose ventures to product quality problems. Building on this notion, we suggest that ventures backed by VC firms with short investment horizons may experience more product quality problems than those backed by VC firms with long investment horizons. We further suggest that the effect of a VC firm's investment horizon on product quality problems is mitigated when the venture is invested by corporate VC investors but amplified when the venture develops complex products. We test our hypotheses using a dataset on product recalls of VC-backed ventures in the U.S. medical device industry.

Keywords: Venture capital investment; Investment horizon; Technology ventures; New product development; Product quality problem (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbvent:v:40:y:2025:i:1:s0883902624000764

DOI: 10.1016/j.jbusvent.2024.106454

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