Venture Capital 2.0: From Venturing to Partnering

70 Pages Posted: 3 May 2016 Last revised: 17 Jun 2016

See all articles by Joseph A. McCahery

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Erik P. M. Vermeulen

Tilburg University - Department of Business Law; Signify (formerly known as Philips Lighting) - Legal Department; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI); Kyushu University - Graduate School of Law

Date Written: May 2, 2016

Abstract

Against the backdrop of an ever-changing financial landscape sometimes characterized by an abundance of funding and start-up opportunities, but usually characterized by down rounds and decreasing valuations (leading to funding, investment and liquidity gaps), “venture capital” has taken on a new uncertainty and complexity. In this review, we suggest that venture capital should not exclusively - or even primarily - be defined in terms of providing risk capital (and advise) to founder-entrepreneurs. Such an approach to venture capital, which is often described in terms of a “venture capital cycle”, seems to represent the conventional wisdom in most recent discussion. According to this perspective, the solution to the funding, investment and liquidity gaps is for new sources of capital - be they government, corporate or crowd - to step in and provide founder-entrepreneurs with money, capacities and connections that allows them to start, scale and grow their businesses.

These ingredients are necessary but not sufficient to maximize the economic potential of start-ups. Clearly we need something more. Recently, alternative forms of finance and a new breed of venture capital providers have emerged which focus more on collaborations and the process of building long-term relationships constructed around sharing, mutual trust and respect (partnering) than making money (venturing). Online platforms, such as AngelList, play an important role in encouraging these collaborative models. Some investors have labeled this process as “venture capital 2.0”. We explore the view that reforms that relax rules and regulations governing initial public offerings should attract new “venture capital 2.0” investors and high volumes of business. However, the growth rates for new segment listings in Europe and the United States have stalled recently, casting doubts on the usefulness of the of the IPO route for both young firms and investors. We suggest that a renewed focus on private IPOs, followed by a trade-sale or public IPO, is necessary to accommodate the preferences of entrepreneurs and investors.

Keywords: crowdfunding, corporate governance, corporate venture capital, equity finance, exits, IPOs, liquidity, platforms, private-IPOs, venture capital

JEL Classification: G2, G24, G31, K22, L26, O3

Suggested Citation

McCahery, Joseph A. and Vermeulen, Erik P.M., Venture Capital 2.0: From Venturing to Partnering (May 2, 2016). Lex Research Topics in Corporate Law & Economics Working Paper No. 2016-2; Tilburg Law School Research Paper No. 11/2016; European Corporate Governance Institute (ECGI) - Law Working Paper No. 315/2016. Available at SSRN: https://ssrn.com/abstract=2773622 or http://dx.doi.org/10.2139/ssrn.2773622

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31-(0)13-466-2306 (Phone)
+31-(0)13-466-2323 (Fax)

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Erik P.M. Vermeulen (Contact Author)

Tilburg University - Department of Business Law ( email )

Signify (formerly known as Philips Lighting) - Legal Department ( email )

Amstelplein 2
Amsterdam
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Kyushu University - Graduate School of Law ( email )

6-19-1, Hakozaki, Higashiku
Fukuoka, 812-8581
Japan

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