Strategy logic of the venture capitalist : understanding venture capitalism - the businesses within - by exploring linkages between ownership and strategy of venture capital companies, over time, in America and Europe

Abstract

This inductive, exploratory study is aimed at understanding venture capital as a business phenomenon, as someone's business. The mission is to contribute to strategising both inside and outside venture capital companies. The study centres around the 'doctor' whose serum - properly diagnosed, dosed, and injected – shields nations against economic retardation. Defined broadly, venture capitalists are a diverse community ranging from private individual investors to government-owned institutions and from entrepreneurial teams to publicly-held corporations. Empirically, the study investigates missions, organisational and legal structures, and product-market strategies of differently-owned venture capital companies. The objective is to investigate who are in business, in venture capital, why they are in business, and how they are in business. Methodologically, the study builds on a synthesis of four different approaches. Conceptual constructing; aimed at creating a theoretical framework of venture capitalist strategy logic; largely derives from the researcher's own industry career (1986-1996) and is interdisciplinary by nature. Historical review; aimed at sketching archetypes of venture capitalist strategy logic; investigates literature from a variety of perspectives with an emphasis on the industry's launch and evolution in America. Survey exercise; aimed at probing the archetypes; comprises of industry surveys conducted in Finland (1989, 1992, 1997) and America (1992). Case study; aimed at further probing the theory construction; focuses on the Finnish market and follows two companies through changes of owner-type deriving from case interviews conducted during 1993-2000. Key findings: (i) Venture capital is an ownership (rather than finance) related phenomenon involving owners emerging between managers and investors; (ii) the buyers of venture capitalists' portfolio stakes, labelled consumers, are the 'forgotten' stakeholder group of the venture capital process; (ii) success in fund-raising, entering, value-adding, and exiting transforms into venture capital spiral of institutionalisation; (iv) the venture capital phenomenon employs not one business concept, but several, illustrated by six archetypes of strategy logic; all culminating into differences in dynamics with vast implications to the industry's stakeholders.