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The role of smart money: What drives venture capital support and interference within biotechnology ventures?

„Smart Money“: Welches sind die Treiber für eine aktive Unterstützung und Einflussnahme von Venture Capitalisten in Biotechnologieunternehmen?

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Summary

This article analyzes the extent of venture capitalists’ support and interference within 79 German and British biotechnology companies. I disentangle the overall VC involvement on the basis that support activities are congruent with the entrepreneurs’ interests while interference is generally objected to. My analysis shows that modern finance theory only offers useful insights in VC-entrepreneur collaboration when both support and interference are separately investigated. The data indicates that VCs provide more support when they are given incentives through a majority of control rights. Simultaneously, VC interference increases with potential conflicts of interests due to agency problems. The results are largely in line with principal-agent theory and the signalling approach of Dessein (2005). Furthermore, I find evidence that government co-financing schemes that provide funds in the form of debt-like instruments decrease VC monitoring activities.

Zusammenfasung

Dieser Beitrag analysiert die Unterstützung und Einflussnahme von Venture Capitalisten in 79 deutschen und britischen Biotechnologieunternehmen. Dabei trenne ich das gesamte Ausmaß der Zusammenarbeit in aktive Unterstützung und Einflussnahme. Unterstützung wird von Seiten der Gründer generell gewollt wohingegen eine Einflussnahme unerwünscht ist. Meine Untersuchung zeigt, dass die moderne Finanzierungstheorie nur dann die Zusammenarbeit zwischen VC und Entrepreneur ausreichend erklären kann, wenn das Ausmaß an Unterstützung und Einflussnahme getrennt voneinander analysiert werden. Dann zeigt sich, dass VCs Gründer einerseits häufiger unterstützen wenn sie Anreize durch Kontrollrechte besitzen. Andererseits steigt die Einflussnahme mit steigender Gefahr von Interessenskonflikten. Meine Ergebnisse bestätigen die Erkenntnisse der Principal-Agent-Theorie und des Signallingansatzes von Dessein (2005). Zusätzlich zeigen meine Daten, dass VCs ihre Kontrollaktivitäten reduzieren sobald öffentliche Kofinanzierungsprogramme fremdkapitalnahe Finanzierungsmittel zur Verfügung stellen.

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Authors and Affiliations

  1. Research Associate at the Institute for Capital Market Research and Finance, Ludwig Maximilian University of Munich, Schackstr. 4, D-80539, Munich, Germany

    Florian Haagen

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  1. Florian Haagen
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Correspondence to Florian Haagen.

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Haagen, F. The role of smart money: What drives venture capital support and interference within biotechnology ventures?. Z. Betriebswirtsch 78, 397–422 (2008). https://doi.org/10.1007/s11573-008-0023-1

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