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Research Summary: Private equity (PE) investors invest in a portfolio of firms, setting new, ambitious performance aspirations and providing monitoring and value‐adding services to help management attain these aspirations. Integrating a behavioral theory of the firm and corporate governance perspective, this study investigates how portfolio firms respond to performance feedback, considering heterogeneity in PE investors' incentives and influence toward a given portfolio firm's strategic actions. Using unique data from a PE investor including direct aspirations measures, we find that (1) portfolio firms' performance relative to aspirations, and (2) the PE investor's relative investment amounts and experience of PE‐appointed board members, interact to affect the distinct growth strategies (i.e., internal capital investments or external acquisitions) its portfolio firms pursue. Managerial Summary: A PE investor may guide its portfolio firms differently. Incentives to intervene should be larger in case of larger investments, and influence should be more extensive in case of more senior PE board representatives. In this study, we examine how a PE investor's varying incentives and influence affect how PE‐backed firms strategically react to underperformance and overperformance. We find that a PE investor pushes for capital investments but deters acquisitions as performance shortfalls increase in a portfolio firm, when they have made larger investments and appointed more senior board members. In case of overperformance, a PE investor pushes toward acquisitions (and against capital investments) when they have invested more. Surprisingly, the opposite holds in case of more senior board members. Video Abstract [ABSTRACT FROM AUTHOR]

While the academic literature on entrepreneurial finance has expanded exponentially, many gaps in our knowledge remain. This is driven by digitalization impacting the development of new investment types such as crowdfunding and ICO, the emergence of new investors based upon digital technologies, and the functioning of existing investors. Next, the supply of entrepreneurial finance has become more diverse and new types of investors developed, like incubators and accelerators, family funds, impact investors, or sovereign wealth funds. This increases the sources and type of funding new ventures can get access to. Third, investors pay increasingly attention to non-financial goals like providing solutions to environmental or societal challenges. This paper explores these trends and suggests avenues for future research. [ABSTRACT FROM AUTHOR]

While research has commonly assumed that business-owning families are concerned about the preservation of control, families are increasingly seeking cooperation with external investors to accomplish firm- or family-level goals. In this paper, we provide a conceptual configuration of the different governance scenarios that may arise when family owners attract outside capital. Combining two important family objectives—(a) to provide liquidity either to the family or to the firm, and (b) to cede or to retain long-term family control—we identify four scenarios with different governance implications and preferred types of external investors. Our analysis increases understanding of the evolving structures of ownership in private family firms, the effectiveness and efficiency of governance arrangements in family firm–external investor cooperation, and the increasingly heterogeneous private equity funding landscape. [ABSTRACT FROM AUTHOR]

Past research has shown that new firms can facilitate resource mobilization by signaling their unobservable quality to prospective resource providers. However, we know less about situations in which firms convey multiple signals of different strengths—that is, signals that are more- or less-correlated with unobservable firm quality. Building on a sociocognitive perspective, we propose that prospective resource providers respond differently to signals of different strengths and that the effectiveness of signals, especially weak signals, will be contingent on the media attention new firms receive. Empirically, we conduct a longitudinal analysis examining the ability of new private equity firms to raise a follow-on fund. Consistent with our theory, we find that unrealized performance, a relatively weak signal, positively influences fundraising. However, we fail to find statistical evidence that its effect is weaker than that of realized performance, a relatively strong signal. Further, media attention strengthens the relationship between unrealized performance and fundraising, but media attention exerts less impact on the relationship between realized performance and fundraising. Taken together, our findings deepen our understanding of how new firms can mobilize resources with signals of different strengths and of how the media—as a key information intermediary—differently impacts their effectiveness. [ABSTRACT FROM AUTHOR]

This paper explores how contracts in private equity-backed buyouts shape corporate governance in portfolio companies. Drawing upon agency theory and incomplete contracting theory, 50 actual contracts are analyzed in detail. Contracts focus on reducing adverse selection risks through limiting pre-investment information asymmetries and aligning the goals of investors and sellers. Moral hazard risks vis-à-vis management are limited through limiting post-investment information asymmetries and limiting shirking behavior through limiting free cash flows. Goal alignment is achieved through high-powered incentive structures combined with shifting risk of underperformance to management. Managerial hold-up problems are addressed through restricting share transactions and limiting managerial actions. Residual powers and contingencies are mainly used to deal with incomplete contract designs due to uncertainties. Few clauses are used to address the reverse agency problem in which management is protected against moral hazard problems created by the private equity investor. PE contracts have transparent and very strong outcome-based cash flow rights, both limiting downside risk and rewarding upside potential. This contrasts with VC contracts which are especially contingency-based given the high levels of uncertainty of the portfolio companies. [ABSTRACT FROM AUTHOR]

Crowdfunding has become an alternative source of financing for entrepreneurial new ventures and social projects. While identifying and "tapping the right crowd" of backers has been shown to be crucial for the success of crowdfunding campaigns, we still lack a basic understanding of why individuals become backers in the first place and why so many others do not. Building on information processing theory, we advance crowdfunding awareness as an important precedent to actual engagement as a backer. We hypothesize and—using a sample of 1,042 individuals in Flanders (Belgium)—show that individuals' crowdfunding awareness depends on whether they are male or female, as well as on the (perceived) socioeconomic environment they are in. Furthermore, our findings suggest that women tend to derive their crowdfunding awareness to a larger extent from these environmental characteristics than men. These results have important implications for theory and practice. [ABSTRACT FROM AUTHOR]

Digitization creates new financial channels that complement traditional intermediaries, but may raise concerns over fraud, cybersecurity, or bubbles. Artificial intelligence and machine learning change the way in which traditional investors work. This special issue focuses on economic, cultural, and regulatory determinants of fintech development, and on the new forms of information production and processing engendered by digital entrepreneurial finance. We provide a general overview of digitization in the market for entrepreneurial finance, illustrate how the different articles in the special issue contribute to advance our knowledge, and identify promising avenues for research. [ABSTRACT FROM AUTHOR]

The recent proliferation of, and ubiquitous heterogeneity between entrepreneurial investors' calls for a revision of the various actors and their interactions in the entrepreneurial finance landscape. Most particularly because limited attention has been given to co-investments between distinct investor types, while this could, however, be an important, yet understudied, technique entrepreneurial firms use to manage resource dependencies. Based on a hand-collected sample of first equity investment rounds in 4,600 U.K. firms, this study shows that (i) firms attract funding from more investors if potentially opportunistic investors are present, (ii) firms with higher needs for complementary resources are more likely to attract funding through multi-type co-investments, and (iii) past multitype co-investment experience discourages new such investments. [ABSTRACT FROM AUTHOR]

The positive effect of venture capital (VC) on firm growth has been widely documented. However, there exists a large variation in growth of VC‐backed firms, with only a small number reaching a substantial size. Prior studies have linked the variation in growth of VC‐backed firms to differences in resource endowments of the entrepreneurial top management team, the firm or the venture capitalist, without considering their potentially complex interactions. In addition, the literature has taken strong growth aspirations in VC‐backed firms as a given, without examining potential variations thereof and their potential implications. Therefore, this study aims to examine which configurations of resource portfolios and growth aspirations lead to high VC‐backed firm growth. In order to do so, we take an inductive, theory‐building approach and build on fuzzy‐set qualitative comparative analysis (fsQCA). Our results show that strong growth aspirations of the entrepreneurial top management team are a necessary condition for high VC‐backed firm growth. Furthermore, we identify four configurations which, in combination with strong growth aspirations, may lead to high VC‐backed firm growth. [ABSTRACT FROM AUTHOR]

Crowdfunding research has grown exponentially since the first academic papers in the field were published in 2013. This interpretivist study attempts to explain why academics worldwide have chosen to study crowdfunding. As no explicit theories currently exist to guide our research, we have relied on schooling and management fashion theories. Based on interviews with 30 crowdfunding scholars, we develop a model which interprets the underlying reasons why academics have chosen this research topic. Our results show that, beyond scientific reasons, career and socio‐psychological reasons also explain why academics have chosen to research crowdfunding. By documenting both the scientific and non‐scientific reasons why researchers study a certain topic, our findings contribute to the knowledge about the rationales behind scientific development in the fields of management, entrepreneurial finance and entrepreneurship. [ABSTRACT FROM AUTHOR]

Using a resource dependence perspective, we theorize and show that non-venture-capital-backed ventures founded in U.S. states with a lower availability of venture capital (VC) are more likely to relocate to California (CA) or Massachusetts (MA)—the two VC-richest states—compared to ventures founded in states with a greater availability of VC. Moreover, controlling for self-selection, ventures that relocate to CA or MA subsequently have a greater probability of attracting initial VC compared to ventures that stay in their home state. We discuss the implications for theory, future research, and practice. [ABSTRACT FROM AUTHOR]

Research on venture capital (VC) internationalization has expanded rapidly over the last decade. This paper reviews the extant literature on VC internationalization and highlights gaps in our knowledge. We identify three major research streams within this literature, which revolve around the following questions: (1) which VC firms invest across borders and what countries do they target; (2) how do VC firms address liabilities of foreign investing; and (3) what are the real effects of international VC investments? We provide an overview of the contributions in these research streams, discuss the role of public policy, and suggest avenues for future research. Specifically, we call for a deeper understanding of: (1) the functioning and impact of VC firms' modes of internationalization; (2) micro‐level processes such as the functioning and decision making of international investment committees, or the development of international human and social capital; (3) the role of country institutions in VC internationalization and its real effects; and (4) the interplay of international VC with alternative financing sources. [ABSTRACT FROM AUTHOR]

More and more family firms open their capital for outside investors, yet existing studies mainly conclude that family firms are more reluctant than nonfamily firms to hand over control to outside investors. In this study, we build on an organizational identification perspective to explore why family firms differ in their attitudes toward outside investors. We hypothesize that family members who identify strongly with their firms are less willing to cede control to outside investors and, if they do cede control, have a stronger preference for investors who may readily identify with family firms, such as family offices or high net worth individuals, rather than investors who may not fit well with a familial identity, such as private equity sponsors or financial investors. We also hypothesize that social identification mediates the relationship between important family firm governance characteristics and preferences for outside investor. Exploratory evidence from a sample of Belgian family firms is supportive of most of our predictions. [ABSTRACT FROM AUTHOR]

This article examines how angel investors' human capital affects the valuation of their portfolio companies, based on the pre-money valuation of 123 investment rounds in 58 Belgian companies. We argue that angel investors with higher levels of human capital will perceive a higher value-creating potential in entrepreneurial opportunities through their ability to see more value-creating options, a higher value-adding potential post-investment, and an enhanced legitimacy provided to the venture. Economic theories suggest they appropriate these rents through lower valuations, whereas stewardship theory suggests they share value creation with entrepreneurs. Consistent with stewardship theory, we show angel investors negotiate higher valuations when they have higher levels of human capital, more specifically if they studied longer, have a business degree, more entrepreneurial experience, or previous professional law experience. As such, our results contrast with the behavior of venture capital investors who negotiate lower valuations when they have more experience. [ABSTRACT FROM AUTHOR]

Up to now, little attention has been paid to the continuity of a firm when entrepreneurs exit. Survey data from 175 entrepreneurs confirm the theory of planned behavior as an appropriate framework to understand whether entrepreneurs, when leaving, sell or liquidate their firm. Entrepreneurs' sale attitudes are related to sale intentions, which are associated with firm sale. Further, sale attitudes are positively related to whether entrepreneurs perceive firm continuation to be out of free will, their experience, the number of employees, and whether the firm is a multigeneration family business. [ABSTRACT FROM AUTHOR]

Manuscript Type Empirical Research Question/Issue We first study how cross-country differences in shareholder protection against self-dealing and personal bankruptcy laws affect the financing of new technology-based firms ( NTBFs). Second, we study how venture capital ( VC) investors - as expert monitors and initiators of 'good' governance practices in firms - moderate aforementioned relationships. Research Findings/Insights Using a unique longitudinal dataset of 6,813 NTBFs from six European countries, we find that better shareholder protection rights increase the probability of raising external equity financing and allow firms to raise larger amounts of equity financing. Less forgiving personal bankruptcy laws decrease the probability of raising debt financing and limit the amount of debt financing that is raised. VC ownership strengthens the aforementioned relationships. Theoretical/Academic Implications This study is one of the first to provide evidence on the relationship between national legal systems and the financing of private NTBFs. We further address a recurring call for more research on the interaction between country-level legal systems and firm-level corporate governance. In particular, we show that expert monitors, such as VC investors, strengthen the relationship between national legal systems and NTBF's access to external financing. Practitioner/Policy Implications Policy makers often focus on increasing the supply of VC financing as a panacea for external financing constraints experienced by NTBFs. This study shows that VC ownership is particularly effective at increasing firms' access to external financing in countries with strong investor protection rights and entrepreneur-friendly personal bankruptcy laws. [ABSTRACT FROM AUTHOR]

This paper studies the role of entrepreneurs in investment tie formation in science-based entrepreneurial firms. Specifically, we address why investment tie formation is path dependent for some firms but more amenable to intentional management for others. Using longitudinal case studies, our evidence suggests that early investment tie formation is path dependent because scientific entrepreneurs typically approach only one or a few prospective investors from within their institutional context. Differences in experience between early investors affect the professionalization of entrepreneurial teams (or lack thereof), which influences the extent to which subsequent investment tie formation becomes more amenable to intentional management or remains path dependent. [ABSTRACT FROM AUTHOR]

Chapter 7 of the book "Foundations & Trends in Entrepreneurship," by Sophie Manigart and Mike Wright is presented. It discusses the nature and processes of venture capital activity. It recommends conducting further research on the paradox of relational embeddedness in venture capital (VC) partner selection. It also cites the need to explore the impact of conflicts between venture capital investors and entrepreneurs on exit type.

Chapter 6 of the book "Foundations & Trends in Entrepreneurship," by Sophie Manigart and Mike Wright is presented. It discusses the various elements of the returns that venture capitalists (VCs) generate from their activities. It also analyzes the evidence related to returns to VCs at the fund level.

Chapter 5 of the book "Foundations & Trends in Entrepreneurship," by Sophie Manigart and Mike Wright is presented. It discusses the fundamental role of exit in the venture capital process as venture capital investors' ultimate goal is to exit their portfolio companies as profitably as possible. It also explores the performance of initial public offerings (IPOs) supported by venture capital.

Chapter 4 of the book "Foundations & Trends in Entrepreneurship," by Sophie Manigart and Mike Wright is presented. It reviews the literature on motives for syndication and the selection of syndication partners. It also explores the performance of syndicated deals and the management of a syndicate.

Chapter 3 of the book "Foundations & Trends in Entrepreneurship," by Sophie Manigart and Mike Wright is presented. It discusses the impact of venture capital on portfolio companies and stakeholders. It also examines the importance of the role of venture capital companies in international business enterprises.

Chapter 2 of the book "Foundations & Trends in Entrepreneurship," by Sophie Manigart and Mike Wright is presented. It discusses the role of venture capital investors and the extent of their involvement in their portfolio companies. It also explores the relationship between the venture capitalist (VC) and the entrepreneur.

Chapter 1 of the book "Foundations & Trends in Entrepreneurship," by Sophie Manigart and Mike Wright is presented. It discusses the difference between venture capital and financial intermediaries such as banks, institutional, or stock market investors. It explains the focus of the monograph, as well as several information resources used by the authors.

This study explores the impact of the bargaining power of venture capital (VC) firms on the valuation of their portfolio companies. VC firm types with greater bargaining power vis-à-vis the entrepreneur are expected to negotiate lower valuations compared with VC firm types with less bargaining power. Consistent with this hypothesis, university and government VC firms, which have comparatively greater bargaining power, negotiate lower valuations compared with independent VC firms. The valuations of captive VC firms equal those of independent VC firms. Our findings suggest that valuations in the VC contract reflect the relative bargaining power of the VC investor. [ABSTRACT FROM AUTHOR]

Building upon prior research that demonstrates how the limited knowledge of finance alternatives of entrepreneurs may cause suboptimal finance decisions, this paper examines how entrepreneurs' human and social capital influence their knowledge of finance alternatives. For this purpose, we use survey data from 103 Belgian start-ups. Results demonstrate that entrepreneurs with a business education and entrepreneurs with experience in accountancy or finance have a broader knowledge of finance alternatives. Having a strong network in the financial community is further positively associated with the knowledge of finance alternatives. However, generic human capital, including higher education, industry experience, and management experience, is almost not related with the knowledge of finance alternatives. [ABSTRACT FROM AUTHOR]

While bootstrap finance is widely used in entrepreneurial ventures, both scholars and practitioners have presented conflicting views on the relation between financial bootstrapping and venture growth. This article empirically investigates the association between bootstrap strategies used at startup and subsequent venture growth. For this purpose, we use a longitudinal database comprising data from both questionnaires and financial accounts of 214 new ventures. Findings demonstrate that the association between financial bootstrapping and venture growth is either nonexistent or positive. More specifically, new ventures that use more owner funds, employ more interim personnel, encourage customers to pay more quickly, and apply for more subsidy programs exhibit higher growth over time. We discuss the managerial and policy implications of these results and suggest avenues for future research. [ABSTRACT FROM AUTHOR]

The Theory of Planned Behavior (TPB) is used in this paper to empirically study whether an entrepreneur transfers his/her firm, conditional on exiting the firm. TPB posits that entrepreneurial intentions drive actions, being the transfer of a business. The TPB framework is expanded by assessing whether formal and informal planning of the exit process further explains the remaining gap between intentions to transfer and the actual transfer. Based on survey responses of 198 Belgian entrepreneurs who exited their company between 2001 and 2006, the TPB explains both the intention to transfer and the actual transfer with a significant amount of variance. Formal planning of the exit has no direct impact on business transfers. [ABSTRACT FROM AUTHOR]

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