Watching the Shop from the Front Seat: Determinants of Venture Capitalists' Representation on the Board
36 Pages Posted: 17 Feb 2005
Date Written: November 2004
Abstract
Oversight and involvement are essential for a venture capital firm to influence the destiny of the portfolio company. This paper focuses primarily on the venture capital firm's decision to take a formal responsibility through joining the board. Our study uses a large sample of private British companies that received institutional investment between 1999 and 2002. We examine the determinants of board composition and board size. Contrary to common belief, only 30% of the companies have any institutional investor (a "VC") on board. The decision to take a formal board seat is based on the ability to make a contribution: Specifically, on the stage of the portfolio firm, the industry fit between the investment and the venture capital firm, and the overall experience of the latter. Two aspects of British venture capital firms inhibit their role in governance. First, firms that are organised as a public corporation (and not as a partnership) refrain from undertaking a formal board responsibility. Second, some of the more established institutions are organised around branches. We find that the VC firms with branches are less involved with board membership. Finally, we report (but are helpless to rationalize) a sizeable number of cases in which a VC firm is represented on the board yet did not invest in the firm.
Keywords: Determinants, Venture, Capitalists'
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Steven N. Kaplan and Per Strömberg
-
By Steven N. Kaplan and Per Strömberg
-
Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets
By Ronald J. Gilson and Bernard S. Black
-
Money Chasing Deals?: The Impact of Fund Inflows on Private Equity Valuations
By Paul A. Gompers and Josh Lerner
-
Private Equity Performance: Returns, Persistence and Capital Flows
-
Private Equity Performance: Returns, Persistence and Capital
-
The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?
-
Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence
By Thomas F. Hellmann and Manju Puri