The Role of Venture Capitalists in Monitoring Portfolio Companies
Does the role played by venture capitalists add value to their portfolio companies? How do they add value? What are the characteristics of those venture capitalists? Does financial leverage matter for VC-backed companies? All of these questions are researched in this dissertation. The manuscript specifically explores two cases. The first is the role of U.S. venture capitalists after the IPO of their troubled portfolio companies, while the second examines the role of venture capitalists in international investments. The findings detailed in the first part of the study show that a higher level of monitoring and involvement is a significant factor in being a successful company, but characteristics such as the age and reputation of VCs are not. Moreover, and as expected, financial leverage is shown to be an insignificant factor for a troubled VC-backed company. However, those characteristics of venture capitalists are useful in extending the life a VC-backed bankrupt portfolio company. The second part of the study reveals that U.S. venture capitalists prefer to cooperate with a foreign counterpart in order to delegate monitoring responsibilities. Also, international investments tend to have many more foreign venture capitalists and fewer non-managing board members than domestic investments. This manuscript is divided into five chapters. Chapter 1 gives an overview of the venture capital industry. Chapter 2 discusses the problems of the VentureXpert database, its limitations and remedies. Chapter 3 investigates the role of venture capitalists in troubled portfolio companies following an IPO. Chapter 4 looks into the role of U.S. venture capitalists in their international portfolio companies. Finally, Chapter 5 summarizes the conclusions of the investigations and research.
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