Management Support for Portfolio Companies of Venture Capital Firms: An Empirical Study of German Venture Capital Investments

Abstract

Insights into strategic antecedents and consequences of management support activities that German venture capital firms (VCFs) provide for portfolio companies (PCs) they have invested in are presented. Such support activities, their primary determinants, and their impacts on the economic performance of PCs are examined. Data were acquiredfrom 103 PCs of 12 German VCFs. Indications are that VCFs can improve the performance of their PCs by providing consultative management support that includes active involvement in key functional PC decisions. It was found that VCF representatives serve their PC more frequently in the role of a board member rather than by providing more intense, continuous, and content-oriented consultative management support. Consultative management support was found more frequently at VCFs focusing on expansion financing rather than the start-up stages. Findings suggestthe recommendation that VCFs should instead focus on continuous, content, oriented consultative management support to their PCs. Quasi-equity financing—i.e., silent partnerships and convertible loans—is suitable to structure control rights in a manner that a continuing involvement of the VCF in key PC functional decisions and ultimately alsoconsultative management support can also be facilitated.(JSD)

Keywords: Portfolio firms, Management techniques, Management training, Venture capitalists, Consulting firms, Control rights