MG5633 Entrepreneurship and Small Business Management
Introduction
In this essay, the role of venture capitalism towards the financial growth and development of entrepreneurial organisations will be discussed in detail. The selection method of journals and articles will be done with a systematic approach with relevant identification for the cause of selections. The aims and objectives, theoretical background and data analysis with findings will be critically reviewed with proper explanation. The concluding sector will contain the actions implemented by the entrepreneurs along with the limitations and futuristic directions of research based on the topic of the impact or contribution of venture capitalism to the productive success of entrepreneurial firms.
The role of venture capitalists in financing entrepreneurial firms
a) Systematic description of the method
The method taken for most journals and articles taken is a secondary research method and one is through the primary research method which helps in finding the data and the way the data is managed well for understanding the phenomenon. Moreover, the journals and articles chosen for the study have been between 2017- 2022 for which highly relevant articles are taken for the study to be effective which has provided in managing the phenomenon effectively. The keywords used for searching the journals and articles have been entrepreneur, ventured capitals and mainly the topic and anything related to it. The researcher has taken 11 articles or journals which are highly essential for the study and quite relevant and reliable in understanding the study in a much more effective way. Additionally, corporate financial management has been highly effective through entrepreneur management through better organisational development for better investors’ growth (Cumming et al., 2019). The articles and journals taken are highly reliable and well managed and are taken according to the topic and the way the research is managed by keeping the phenomenon intact. Therefore, managing the articles and journals has been quite well managed which is highly effective in understanding the data in a much more effective way.
b) Critical Review of the analysed article contents
Article 1: Jeong, J., Kim, J., Son, H. and Nam, D.I., 2020. The role of venture capital investment in startups’ sustainable growth and performance: Focusing on absorptive capacity and venture capitalists’ reputation. Sustainability, 12(8), p.3447.
Aims
The main aim of this article is to portray the broader role and contributions of venture capitalists for the development and sustainable performance of entrepreneurial organisations or startups.
Objectives
- To elaborate on the topic surrounding the role of venture capitalists in the financial help of entrepreneurial firms
- To find the nature of implications done by the capitalists for the well-being of entrepreneurs
Theoretical Background
Venture Capitalism stands for the conceptual process of purchasing the ideas or thoughts of entrepreneurs and nurturing those with high-end financial investment for utmost productivity. The roles of venture capital determine multiple factors of representation of the board, corporate governance and strategic approaches, thus venture capitalists are essential for entrepreneurial start-ups (Metrick and Yasuda, 2021). On a broader note, it is proved that VC investment is extremely significant for entrepreneurs and start-up firms to perform effectively. Additionally, an entrepreneurial firm always needs two types of resources such as intangible and financial as VC play a crucial role in providing these two resources to these firms.
Sample characteristics
In this journal article, the sample characteristics are being done by collecting the data of 363 firms and the performance of these firearms was improved after receiving funds from VCs.
Analysis of Data
Descriptive statistics and multiple variables such as dependent variable, independent variable and c control variables were used to analyse the collected data.
Findings
It has been observed that VC has some limitations and sometimes the positive impact of off-VC funding in entrepreneurial firms is not proven. However, if the timing and way of investment were perfectly done by VC then it may surely enhance the performance of entrepreneurial firms.
Article 2: Gompers, P.A., Gornall, W., Kaplan, S.N. and Strebulaev, I.A., 2020. How do venture capitalists make decisions?. Journal of Financial Economics, 135(1), pp.169-190.
Aims
The aim of this journal is to portray the eight stages of the venture capital process for the depiction of the cyclic process regarding the financial investment for the entrepreneurial start-up
Objectives
- To build the eight phases of venture capital for the venture capitalism process
- To explain how decision-making is involved with venture capitalism for entrepreneurial success and the international economy
Theoretical Background
The article says that for more than the span of 30 years, venture capital plays an important role in the financing of entrepreneurial firms such as Apple, Amazon, Facebook and Google and has had a robust impact on the economic scenario. Moreover, VC-s are also involved in the process of decision-making for the firms or organisations by forming valuations by the usage of the amount of investment and building the ownership target (Gompers et al., 2020). The journal article is saying more than the larger entrepreneurs are also involved with the VC process for surging economical growth.
Sample characteristics
The survey-based sampling has been preferred by the author or the research performers preferred over random VC samples through 885 venture capitalists and the numbers of firms were 681.
Analysis of Data
Quantitative Data analysis has been done in this article along with the conduction of the survey process by the analysis of the investments made in the past supporting the number or quantity of the responses
Findings
The findings from the study or the journal suggest from the knowledge of various academic recommendations which indicates that VC is essential for the decision-making on the financial aspects of entrepreneurial firms.
Article 3: Gu, W., Qian, X. and Lu, J., 2018. Venture capital and entrepreneurship: A conceptual model and research suggestions. International entrepreneurship and management journal, 14(1), pp.35-50.
Aims
This journal or study aims for studying the role of venture capitalism in achieving competitive enhancements in entrepreneurship.
Objectives
- To discuss the contribution of the conceptual framework of VC towards increased competitiveness and value retention
Theoretical Background
VC plays an effective role in the enhancement of the successful competitiveness of entrepreneurial or start-up-based organisations and the conceptual model of VC is mostly used to perform this process. According to this article, the VC process is intertwined with the digital commercial approach of the Internet Of Technology that is helping consumers to draw or illustrate the decisions of purchasing helpful for entrepreneurial firms (Guo et al, 2017).
Sample characteristics
A two-stage large-scale survey has been conducted to collect the sample for the research and it has been observed that 470 project managers participated in the survey.
Analysis of Data
This journal article also followed the mode of quantitative data analysis based on the survey scenarios of sample extraction and the role of the VC in the IoT for entrepreneurial firms.
Findings
From this article, it has been found that venture capitalism is effective for the digital optimization and development of e-business or commercial frameworks specifically for the IoT.
Article 4: Colombo, M.G., d’Adda, D. and Quas, A., 2019. The geography of venture capital and entrepreneurial ventures’ demand for external equity. Research Policy, 48(5), pp.1150-1170
Aims
This journal article aims to observe the structure of venture capital and the ventures of entrepreneurs with external equity demand in financing
Objectives
- To observe venture capitalism with the factor of external equity investment
- To study the relationship between location and degree of prosperity of the ventures
Theoretical Background
This article stated that the role of venture capitalism is effectively revolving the parameters of public governance and reputational perspectives of entrepreneurial start-ups. On the other hand, some entrepreneurial ventures are suffering from the lowered rate of VC investors because of the inadequacy of proper presentation abilities.
Sample characteristics
The research process of this journal article followed the sampling of 533 technologically optimised ventures of entrepreneurship from the European regions with an empirical survey process
Analysis of Data
A quantitative form of data analysis has been done in this article with the help of the tools of the survey in the online viewpoint through random effect models and dependent variables
Findings
The findings from this journal stated that the VC concept owns strong and potential advantages concerning start-up ventures and two types of VC foreign and domestic are productive for business expansion.
Article 5: Drover, W., Wood, M.S. and Zacharakis, A., 2017. Attributes of angel and crowdfunded investments as determinants of VC screening decisions. Entrepreneurship Theory and Practice, 41(3), pp.323-347.
Aims
The aim of this research article is to explain and elaborate on the two steps of the venture capital model that is due diligence and screening
Objectives
- To establish the role of the screening and due-diligence step of venture capitalism in the investment of entrepreneurial firms
Theoretical Background
The decisions of screening by the venture capitalists are intertwined with the seed investments of the entrepreneurial firms as the latter mentioned depending upon the process of seed funding (Drover et al, 2017). Additionally, the cyclic venture capital method is a source of opportunities for young ventures for the optimised dividend or return for the sake of profitability. The research also observed how young organisations and seed investors are related to the impact on the screening decisions of VC.
Sample characteristics
Two consecutive experiments have been conducted on this article with sampling utilisation of 104 venture capitalists and g around 1036 decisions of screening containing angle and crowd characters.
Analysis of Data
The complementary conjoint form of data analysis is deployed in this journal with experimentation with supporting dependent and independent variables
Findings
The studies of the journal articles found that the two steps of the VC investment model namely the screening and due diligence are essential for the financing scenario of entrepreneurial firms.
Article 6: Amit, R., Brander, J. and Zott, C., 2017. Venture capital financing of entrepreneurship: Theory, empirical evidence and a research agenda. The Blackwell Handbook of Entrepreneurship, pp.259-281.
Aims
The aim of this study is to elaborate on the importance of the venture capital sector for the financial support of an entrepreneurial start-up.
Objectives
- To explain the role of the VC process for the provision of equity, debt or combined form for the finance of entrepreneurs
- To evaluate the impact of informational asymmetry
Theoretical Background
This article explored the thorough approach to the process of venture-capital-based financing along with a vivid explanation of the venture capital industry. The informational asymmetries are also a place of focus for this theoretical study amalgamated with the capability of the capitalists for dealing with such imbalances and disparities.
Sample characteristics
The characteristic of sampling in these theoretical study were two surveys and the samples were counted from the investment rounds done on the biotechnological firms
Analysis of Data
Data analysis of this study is based on the econometric analysis of the statistical sources and information as well as data is also analysed from the investment sampling of biotechnological firms.
Findings
This journal article found that often venture capitalism faces asymmetry in the information provided and issues with the intermediaries and the way the VC process deals with the challenges to establish the potential touchpoint of investment
Article 7: Ewens, M., Gorbenko, A. and Korteweg, A., 2022. Venture capital contracts. Journal of Financial Economics, 143(1), pp.131-158.
Aims
The aim of this theoretical study is to watch and study how the contractual procedure is used to impact the outcomes of entrepreneurial firms.
Objectives
- To observe the influence of adverse financial agreements and contracts and how it impact start-up results
Theoretical Background
The article states that the problematic approach of financial dealing in the VC process will be done with negotiation between the investor and the entrepreneur. In accordance with this article, the movement of innovation and the growth of employment which are important for the success of the early stage may be hampered by these erroneous venture capitals.
Sample characteristics
A sampling of this journal has been done from the sources of the rounds of financing and database augmentation along with the information on prices of acquisitions, and stakes of equity.
Analysis of Data
The mode of regressive analysis has been observed by these theoretical papers oriented on the relationship between the shares of equity and the results of VC
Findings
The theoretical study found that there may be several challenges regarding the problems or issues that may intervene in the success factors of an entrepreneur, especially at the baby stage. This study also found that contractual challenges may resist the companies to seek and get potential investors.
Article 8: Cavallo, A., Ghezzi, A., Dell’Era, C. and Pellizzoni, E., 2019. Fostering digital entrepreneurship from startup to scaleup: The role of venture capital funds and angel groups. Technological Forecasting and Social Change, 145, pp.24-35
Aims
This article aims the observation how VC impacts the growth of digital entrepreneurship and external financing resources.
Objectives
- To understand the essentiality of the VC for the start-up and scale-up stages of the entrepreneurial ventures
Theoretical Background
The article revolves around the relationship of digital entrepreneurship with the cycle of VC and these types of funding are important for positive growth. The demand growth or surge is the initial stage for the development of the ventures for higher recruitment and sales
Sample characteristics
This journal followed the case samples of 256 new digital ventures and 372 rounds of investments.
Analysis of Data
Linear regression is the narrative of data analysis with the quantitative approach of surveys and empirical aspects
Findings
This journal found that VC has assertive impacts on the advancement of new digital ventures along with the digital form of scaleups and relationships between the received funding and growing digital ventures.
Article 9: Cumming, D.J., Grilli, L. and Murtinu, S., 2017. Governmental and independent venture capital investments in Europe: A firm-level performance analysis. Journal of corporate finance, 42, pp.439-459.
Aims
The aim of the paper is to understand the impact of government and private enterprises on managing venture capital on understanding the performance of entrepreneur firms.
Objectives
- To identify the venture capital management by understanding the syndicate partners by understanding the cost-effectiveness through effective financial and non-financial management
Theoretical Background
The effective ventured capital development has to be quite well managed by understanding the contribution of the private and government management to establish the ventured firms which has been highly effective by understanding the perspectives management in a much more effective way.
Sample characteristics
The data is primary as the data was observed from the people belonging to venture capital and non-venture capital companies from 1991-2010 by understanding the performances quite well.
Analysis of Data
The analysis of the collected data which has been through primary data collection procedure has been highly managed through the analysis of the data through multinomial logit analysis which is highly effective for managing the study in the most effective manner.
Findings
The findings of the research have to be quite well maintained through the process of liquidation by managing through baseline model development which is highly effective by developing the investment stage development in the most effective manner by managing the firm’s financial structural development.
Conclusions
From the above essay, it may be concluded that venture capital is important for entrepreneurs to boost financial growth and development. The implications that may be extracted from the above observations stated that the cycle of VC is the potential for the technological optimizations of venture capitalism. The futuristic research directions that will be mined from the above studies or article reviews will be fruitful for the entrepreneurs to understand the process of the VC for gaining strengthened investors. Moreover, the entrepreneurs will be benefited from the broad ideas of the impact of VC on economic and technological development and subsequent influences on the success parameters at the early or initial stage. Entrepreneurs also may be privileged with the ways of dealing the contractual issues with the investors that were also found from the above reviews and these may be treated as the future research directions of this study.
The limitations of the study include a lack of available resources for the study which affects the study in the most effective way and the way the data collected are biased for the study to be managed well. The lack of accurate data has to be managed and the way the researched articles are helpful for the study and it provides in managing the understanding of the study effectively. The capitalists manage through venturing for effective management of the global and the local firms for monitoring the managers in the most effective way through better cost management for better business management (Lerner, 2022).
References
Amit, R., Brander, J. and Zott, C., 2017. Venture capital financing of entrepreneurship: Theory, empirical evidence and a research agenda. The Blackwell Handbook of Entrepreneurship, pp.259-281.
Cavallo, A., Ghezzi, A., Dell’Era, C. and Pellizzoni, E., 2019. Fostering digital entrepreneurship from startup to scaleup: The role of venture capital funds and angel groups. Technological Forecasting and Social Change, 145, pp.24-35.
Colombo, M.G., d’Adda, D. and Quas, A., 2019. The geography of venture capital and entrepreneurial ventures’ demand for external equity. Research Policy, 48(5), pp.1150-1170.
Cumming, D., Deloof, M., Manigart, S. and Wright, M., 2019. New directions in entrepreneurial finance. Journal of Banking & Finance, 100, pp.252-260.
Cumming, D.J., Grilli, L. and Murtinu, S., 2017. Governmental and independent venture capital investments in Europe: A firm-level performance analysis. Journal of corporate finance, 42, pp.439-459.
Drover, W., Wood, M.S. and Zacharakis, A., 2017. Attributes of angel and crowdfunded investments as determinants of VC screening decisions. Entrepreneurship Theory and Practice, 41(3), pp.323-347.
Ewens, M., Gorbenko, A. and Korteweg, A., 2022. Venture capital contracts. Journal of Financial Economics, 143(1), pp.131-158.
Gompers, P.A., Gornall, W., Kaplan, S.N. and Strebulaev, I.A., 2020. How do venture capitalists make decisions?. Journal of Financial Economics, 135(1), pp.169-190.
Guo, L., Wei, Y.S., Sharma, R. and Rong, K., 2017. Investigating e-business models’ value retention for start-ups: The moderating role of venture capital investment intensity. International Journal of Production Economics, 186, pp.33-45.
Jeong, J., Kim, J., Son, H. and Nam, D.I., 2020. The role of venture capital investment in startups’ sustainable growth and performance: Focusing on absorptive capacity and venture capitalists’ reputation. Sustainability, 12(8), p.3447.
Lerner, J., 2022. Venture capitalists and the oversight of private firms. In Venture Capital (pp. 267-284). Routledge.
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