Venture Capital and the Financing of Innovation
1. Edition February 2020
196 Pages, Hardcover
Wiley & Sons Ltd
Further versions
The funding of innovative projects that are fundamentally ambiguous often leads to situations where decision-making is difficult. However, decision-making can be improved by practices such as syndication and step-by-step funding. The dynamic of this industry requires us to consider the economic and institutional variables that make this system coherent in English-speaking countries, but conversely reduce it to a privileged niche by the leading authorities in Europe and France.
This book proposes two guiding ideas. The first idea presents innovation as a very uncertain process. This modifies the decision-making in the entrepreneurial ecosystem, with intervention upstream in regards to stronger foundations, evaluations and selection of projects. The second idea is that the actors hold onto partial knowledge in a context where their attention span is limited. These cognitive limitations need the formation of networks, and lead to mutual and complementary dependency relations.
Introduction ix
Chapter 1. Venture Capital, Behavior and Performance of Stakeholders 1
1.1. The analytical framework 4
1.1.1. The contractual model and agency problems 4
1.1.2. The resource-dependent approach 9
1.2. From the theoretical framework to the empirical findings: observed behaviors 11
1.2.1. Methodological problems 11
1.2.2. The arbitrations made: the entrepreneurial risk 13
1.2.3. The change of the relationships over time 17
1.2.4. Behaviors of refusal 19
1.2.5. Risk aversion of venture capitalists 22
1.3. The contribution of venture capital to the performance of innovative companies 28
1.3.1. Innovation, growth and employment 29
1.3.2. Survival rates and entrepreneurial persistence 34
1.4. Conclusion 36
Chapter 2. The Sectoral Dynamics of Venture Capital 41
2.1. Orientation by sector 44
2.1.1. The orientation of venture capital by sector in the United States 46
2.1.2. The trajectory in Europe 48
2.1.3. The lessons learned 50
2.2. High-tech industries, a less stable group 55
2.2.1. Knowledge base, high-tech sectors, and venture capital: the macroeconomic influence 56
2.2.2. The influence of advanced industries on the performance of the US economy 59
2.2.3. Business creation, growth thresholds, and the new technology sector 63
2.2.4. Elements of explanation 66
2.3. An econometric model for determining high-tech investment in Europe 74
2.3.1. The approach used: the analytical framework and assumptions made 75
2.3.2. The econometric model 78
2.3.3. Results and discussion 82
2.4. Conclusion 89
Chapter 3. The Three Structures for Interpreting Venture Capital: The Market, Industry and Institutions 91
3.1. An interpretation of venture capital in market terms 92
3.1.1. From market efficiency to wealth creation 93
3.1.2. Characteristics and functions of the market 96
3.1.3. The venture capital market 97
3.1.4. Why talk about a new market? 102
3.1.5. Risk management at market levels 104
3.2. An interpretation of venture capital in terms of industry 107
3.2.1. The spread of an industrial logic 107
3.2.2. The relative weight of venture capital investment in relation to GDP 112
3.3. The role of institutions in the dynamics of the venture capital industry 126
3.3.1. An econometric model for determining venture capital investment 127
3.3.2. Specific analysis of institutional factors 135
3.4. Conclusion 140
Conclusion 143
References 151
Index 161
