Venture Capitalists’ Managerial Involvement in Entrepreneurships: Is Too Much of a Good Thing Bad?

34 Pages Posted: 5 Feb 2009 Last revised: 3 Aug 2010

See all articles by April M. Knill

April M. Knill

University of South Carolina - Darla Moore School of Business

Date Written: August 2, 2010

Abstract

Venture capitalists are investors that provide valuable hand-holding for the companies in which they invest. A venture capitalist chooses the level of involvement with his portfolio companies. Involvement spans from a very relaxed, limited communication ‘laisse faire’ approach to a very involved, almost stifling, ‘hands on’ approach. If venture capitalist involvement is valuable, is more involvement better, or is too much of a good thing bad? The answer to this question lies in the nature of the relationship between venture capitalist managerial involvement and portfolio company performance; specifically, whether it is linear or nonlinear. Using data from Thomson Reuters VentureXpert, I find that there exists a nonlinear relationship between the level of VC involvement for both PC performance and outcome. Results suggest that extreme levels of VC involvement should be avoided.

Keywords: entrepreneurship, venture capital, governance, ownership

JEL Classification: D92, M13, G24

Suggested Citation

Knill, April M., Venture Capitalists’ Managerial Involvement in Entrepreneurships: Is Too Much of a Good Thing Bad? (August 2, 2010). Available at SSRN: https://ssrn.com/abstract=1337110 or http://dx.doi.org/10.2139/ssrn.1337110

April M. Knill (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
University of South Carolina
Columbia, SC 29208
United States
18502949216 (Phone)

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