Handbook of Research on Venture Capital

Citation

Shabbir, A. (2008), "Handbook of Research on Venture Capital", International Journal of Entrepreneurial Behavior & Research, Vol. 14 No. 5, pp. 370-372. https://doi.org/10.1108/13552550810897722

Interest in the field of venture capital, both from the academic as well as practitioner perspective, has grown rapidly over the last decade. This handbook, edited by Hans Landström, provides a timely and valuable addition to the body of knowledge in the field of venture capital research, especially from the managerial perspective. It is a collection of 17 research articles representing the latest thinking in the field, and covers many important themes, including the origin and history of venture capital, its institutional (formal) sources, its informal sources including angel finance, and corporate venture capital – the last being a particularly noteworthy theme, given that it has received relatively less attention in the literature.

The book is divided into five parts. Part I covers the history and origins of venture capital as a research field. It has four articles. Article 1 by Landström provides a comprehensive overview of the current state of the venture capital industry, and of the various strands and approaches to research on the topic. Its rather novel coverage in terms of inclusion of the interviews of the some of the pioneers of venture capital research, like Tyzoon Tyebjee, Ian McMillan, and William Sahlman, provides a useful insight into how the thinking and research in this field has evolved, in line with the evolution of the industry itself. Article 2 by Sapienza and Villanueva reviews the theoretical and conceptual contribution of venture capital research, to increasing our understanding of the venture capital phenomenon. The authors conclude by suggesting some directions for future research in the field. Article 3 offers a geographical perspective on both the formal and informal venture capital industry, highlighting the strongly regional characteristic of venture capital investments. Mason argues that the regional dimension of this activity, which is often unrelated to the level of overall economic activity in a region, contributes to the creation of “regional gaps” which can lead to unbalanced economic growth. Finally, in article 4, Murray argues that venture capital activity, being largely a free‐market phenomenon, may not necessarily be conducive to policy intervention. He then goes on to highlight what the consensus is among researchers on the topic and the evidence that academic literature presents on how and what mode of intervention may be appropriate.

Part II of the book relates to the institutional venture capital market. Given that the participants in this market account for the bulk of venture capital activity around the world, this section forms the largest part of the book. It covers seven articles by a number of scholars based in the USA as well as Europe. The section opens with an article that discusses the structure of venture capital funds. Cumming et al. argue that in the USA, the way the funds are structured has important implications for venture capitalists' modus operandi, including their investment strategy, their operations and the type of firms in which they invest. They conclude by calling for further research into how the structure and organisation of venture capital funds in other geographical contexts affect investing strategy and returns. In article 6, Zacharakis and Shepherd study the screening process in the pre‐investment phase. They analyse the decision criteria adopted by venture capitalists from a heuristics perspective, highlighting how the venture capitalists go about the process of selecting new ventures for making investments. They conclude by offering directions for future research into the decision making process of venture capitalists from a behavioural perspective. In article 7, De Clerq and Manigart focus on the post investment phase and, as they call it, open the black box on how venture capitalists add value to their investee ventures. Following the same line of discussion, in article 8, Busenitz argues that research on where venture capital involvement in their investee companies adds value needs to move beyond financial performance measurement to non‐financial benefits including improvements in the governance of these companies. Coming back to the issues of financial performance measurement, Leluex in article 9 provides valuable insight into the macro‐ and micro‐level factors that may affect the performance of venture capital funds. Leleux also highlights in this chapter, the problems associated with performance measurement in this industry. The last two articles in this part deal with issues of management of early stage and later stage ventures. Parhankangas highlights the specific problems associated with investments in early stage ventures given their requirement for longer‐term commitment of capital and high‐risk profile. She proposes several strategies that investors can undertake to deal with these issues. Alternatively, Wright discusses the development of the private equity market from a life cycle perspective, starting from deal generation leading up to exit.

Pat III focuses on the informal venture capital market. It starts with an article by Kelly that not only lays out the future road map for business angel research, but also highlights the progress made in this field over the last 25 years. This is followed with an article by Riding et al. that looks at the investment making process of business angels starting from deal identification to post investment involvement and exit. Article 14, by Sohl, discusses the market inefficiencies that persist in the informal venture capital market at both the seed capital level and the post‐seed level. Sohl then discusses the solution developed by the market for addressing these inefficiencies, including the development of angel portals, and their experiences in providing angel financing.

Part IV of the book relates to corporate venture capital. To date, this topic has received relatively less attention in research. Hence, its coverage in this volume is both timely and informative. The articles in this part deal with corporate venture capital financing from the two relevant perspectives, one that of the corporate venturer and the other, that of the entrepreneur. The first of these articles, by Maula, discusses the strategic implications of corporate venturing from the company's perspective, while article 16 by Shaker and Allen highlights the benefits, both financial and non‐financial that a corporate venturer's collaboration can provide to a new venture. The volume closes with Part V, where Landström discusses the implications of the literature for policy, practice and research.

While constituting a valuable addition to the literature on venture capital, the scope of the book as Landström points out, is limited to research originating from a management and strategic perspective. It therefore ignores a whole body of research on venture capital that has its origins in finance and economics characterised by the work of notable academics like Paul Gompers and Josh Lerner. Moreover, its scope is heavily focussed on seed stage and early stage financing. It would have been useful and informative to see greater coverage of topics falling under the scope of private equity like later stage financing and various exit strategies. In terms of geographical focus, although North America and Europe, the two continents on which the entire material covered in the volume is based (and which account for the bulk of global venture capital activity), it would have been interesting to see some coverage of the venture capital industry of Asia particularly India and China, the two major economic powers of the continent.

Overall, though a bit on the pricey side (£135 for a hard‐bound copy covering 441 pages of text), the book would make a valuable addition to any library that caters to the needs of those interested in entrepreneurship and new venture creation, be it academics, practitioners or policy makers.