Entrepreneurs' Access to Private Equity in China: The Role of Social Capital

Bat Batjargal () and Mannie M. Liu ()

No 453, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Drawing on Social network theory, this article argues for enhancing effects of social capital of entrepreneurs on investment selection decisions of venture capitalists (to invest versus not to invest), and main effects of social capital on investment process decisions such as venture valuation, investment delivery speed and contractual warrants/provisions. The core idea of enhancing effects is that the presence of particularistic ties between venture capitalists and entrepreneurs will affect positively investment selection decisions of venture capitalists if only other main factors for investment making such as management team, industry, market attractiveness, proprietary technologies and products are perceived as strong by investors. The context of the study is People's Republic of China. The empirical data is composed of 158 venture capital investment decisions in Beijing and Shanghai. The main finding is that social capital is supplementary and additive to other investment determining factors such as project and team qualities at selection stage, and social capital is a main factor for investment process decisions once a venture has been selected for funding. The main theoretical implication is that social capital may affect outcome variables in interaction with other factors. The main practical implication for entrepreneurs is that social capital is probably necessary but insufficient for raising venture capital successfully.

Keywords: Social capital; private equity; entrepreneurship; China (search for similar items in EconPapers)
Pages: 48 pages
Date: 2002-04-01
New Economics Papers: this item is included in nep-ent
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Citations: View citations in EconPapers (3)

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