Coaching Small Biotech Companies into Success: The Value-adding Function of VC

Terttu Luukkonen, and Mari Maunula,

No 1032, Discussion Papers from The Research Institute of the Finnish Economy

Abstract: The paper reports an empirical study on the non-financial value-added provided by Venture Capital investors to their investee firms. This study will use a four-class grouping of the various non-financial value-adding capabilities provided by VC firms, namely, scouting, monitoring, signalling and value-adding services. The study examines biotechnology industry in Finland. Finland has a dual system with independent (partially ever-green) VC companies and public or semi-public VC organisations. Additionally, informal VCs are fairly active. Whether the different types of VC organisation aim, are able and indeed do deliver non-financial value-added, in addition to their financial input, is the central focus of this study. The paper has an evolutionary perspective on Venture Capital according to which VC promotes a variety of experimentation with new technologies, especially through the foundation of new firms oriented to experimentation and development of new ideas. At the same time, VC industry fulfils a selection function in its role as a financial intermediary. The study data have been collected through interviews, conducted at the end of 2005, with the total population of small and medium-sized, VC-backed biotech companies established in Finland since 1986. Central findings of the study include an observation that all three VC types did provide value-added in the meaning outlined above. Nevertheless, there were clear differences between them in terms of the overall perceived value-added as well as in their activity profiles. Informal investors were found to have the highest overall value-added and kept closest contacts with their investee firms.

Keywords: venture capital; biotechnology (search for similar items in EconPapers)
JEL-codes: G24 L65 O16 O38 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006
New Economics Papers: this item is included in nep-bec, nep-ent, nep-fin, nep-fmk, nep-hea, nep-ino and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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