Abstract
Grounding our work on the resource-based view of the firm, we study and quantify the impact of non-financial resources added by venture capital (VC) on the growth performance of investee companies. While most of the literature compares VC-backed companies with similar companies that did not receive external financing, our originality stems from the use of a counterfactual of companies that received external quasi-equity financing (in the form of participative loans) but not non-financial resources. We use a difference-in-difference (DD) estimator to disentangle the effect of an injection of financial resources (which can be used by companies to acquire non-financial resources) from the contribution of the unique non-financial resources brought in by VC (which companies cannot otherwise acquire). Our results are based on a large sample of young Spanish SMEs that received either VC (915) or participative loans (1551) between 2005 and 2013 as first type of financing. We find that the contribution of the non-financial resources leads to yearly increases of 12.86% in employment, 38.13% in total assets, and 54.03% in sales. Furthermore, we find that only the most experienced VC firms contribute with valuable non-financial resources.
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Notes
We define EVs as recently established SMEs (for a similar approach, see Stuart et al. 1999).
In this regard, despite the reluctance of Ray et al. (2004) about the use of aggregate variables (i.e., performance measures) as a proxy for sustained competitive advantage, we agree with Wernerfelt (1984) that we could resort to such variables when we compare companies receiving and not receiving those valuable resources, especially when several performance measures are jointly used to represent competitive advantage.
Madrid and Catalonia concentrate the most populated and developed cities, with access to banking and consultancy services. Andalusia is the largest region in Spain, and very well connected with Madrid via speed trains. It is not surprising that our results hold stronger in the subset of sample EVs operating in such “cluster” regions (such results are available from the authors upon request).
In addition, we also test the equivalence of trends for the full sample by computing the percentage change of sales, total assets and employment during the 5 years before the funding event, finding that on average such percentage change is not significantly different for VC-backed and PL-backed companies. As an alternative approach, we replicated our main analysis on sales, total assets and employment growth, but restricted the sample to the pre-financing observation period only. Besides control variables and company fixed effects, we included a variable counting the years since the founding and the interaction between such variable and a dummy identifying VC-backed companies. Interestingly, such interaction is not significant, suggesting that VC-backed companies did not have a different trend in growth rates than PL-backed companies before the financing. Such results are available from the authors upon request.
These high-growth rates are not rare in the case of recently-established SMEs.
We have also repeated the model on total assets excluding lnCasht-1 to control for the potential redundancy of this variable with the lagged dependent variable. The results do not change.
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Quas, A., Martí, J. & Reverte, C. What money cannot buy: a new approach to measure venture capital ability to add non-financial resources. Small Bus Econ 57, 1361–1382 (2021). https://doi.org/10.1007/s11187-020-00352-w
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DOI: https://doi.org/10.1007/s11187-020-00352-w