Investor and Investee Conduct in the Risk Appraisal of High Technology New Ventures in the UK

Gavin Reid and Julia Smith

No 205, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: This paper examines, in a high technology context, how investor and investee behave, and interact, in the face of risk. The evidence on which it is based was obtained by fieldwork methods, over the period 2000-2, examining a sample of UK investors and investees active in high technology areas. The paper focuses on four questions: how risky are investments; what affects risk most; what aspects of innovation affect risk; what non-financial factors affect risk most? It finds that there was general agreement between investors and investees about which investments were relatively more or less risky. However, investees were shown to be relatively more risk averse than investors, right across the spectrum of investee types. When it came to factors affecting risk most, there was a clear difference between investors and investees. Agency risk was largely the concern of the investor. Business risk was the investee’s first priority, and agency risk did not figure large in the investee’s mind. This suggests that this component of risk had successfully been shifted on to the investor. Business risk was also a clear concern of investors, but they placed more emphasis on matters like market opportunities and sales, than did investees. The paper concludes that investors and investees generally see risk in the same light, but, that when views differ, this is explicable either by function (producer/ funder) or by relative risk aversion.

Keywords: Venture Capital; Risk Management; High-Technology; Fieldwork (search for similar items in EconPapers)
JEL-codes: D81 G24 L21 L84 M21 (search for similar items in EconPapers)
Date: 2002-02
New Economics Papers: this item is included in nep-ent, nep-fin, nep-fmk, nep-ino and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:0205

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