Abstract
As the editors of this insightful handbook note in their introduction, academic research into the field of venture capital (VC) has grown considerably over the past 10 years, even as the VC investment levels have waned somewhat from their dot com peak. Consequently, the scope of the task of reviewing the VC literature has moved from papers (Wright and Robbie, 1998) to reports (Soderblom and Wiklund, 2006), and finally to the first volume of the Handbook (Landstrom, 2006). Whereas the previous volume broadly followed the ‘venture capital cycle’, as first described by Gompers and Lerner (albeit with further mention of informal and corporate VC), this volume aims to bring a more critical perspective to VC. As such, it examines recent developments such as governance and institutional controls, performance and region-specific and nation-specific factors. The editors, both leaders in the field, have assembled an impressive list of contributors who provide a range of unique insights into recent developments in the VC sector.
After an introduction that highlights the changing position of the VC industry, the first contribution by Jeffrey Sohl provides an excellent overview of the evolution and current state of the market for angel investors and research in the area. The next section focuses on governance of VC. Sofia Johan provides a broad overview of institutional investment in private equity, including the objectives of institutional investors, use of limited partnerships, listed private equity and direct investment in investees. Following this is a discussion of VC financial contracting by Douglas Cumming. This chapter insightfully brings together key theoretical issues with empirical results from around the world. A key point of both chapters is the heterogeneity in practice worldwide.
The following section examines VC performance. The section begins with Dirk De Clercq and Dimo Dimov discussing the role of human capital in VC firms. Beginning with an overview of human capital and how it is operationalised, De Clercq and Dimov then provide a synthesis of the role of individual and collective human capital throughout the investment and syndication processes. The next chapter, by Annaleena Parhankangas, evaluates the economic impact of VC and angel investment using macro-level measures such as job creation, and micro-level measures such as firm and portfolio performance. This chapter concludes with a clear summary of key issues and questions involving the evaluation of venture capital’s impact on economic performance. The final chapter, by Roger Sørheim, extends the theme of value addition discussed in the previous two chapters by specifically looking at VCs as ‘smart investors’, and provides a short overview that synthesises various perspectives on how VCs add value to portfolio firms.
The section on regional and national aspects of VC begins with a review on the geographic organisation of VC and angel investors by Sofia Avdeitchikova. This chapter actually addresses three broad but related issues, exploring first the international evolution of VC and business angels, then cross-border VC investing, and finally regions and proximity as they relate to VC and angel investment. Given this context of the internationalisation of VC, the following chapters explore specific national and institutional contexts in more detail. Gil Avnimelech and Shai Harel provide a concise and insightful history of Israel’s VC industry and its information and communication technology cluster, with particular reference to the role of policy in the success of Israeli efforts to stimulate its high-tech industries. The chapter closes with an excellent synthesis discussing policy implications for other countries, the main points of which ring true around the world. The following chapter by Haitian Lu and Yi Tan explores the emergence and characteristics of the Chinese VC industry, focusing on the limitations of mainstream western theoretical perspectives in explaining Chinese VC, before giving a concise summary of the history, organisation and behaviour of the Chinese VC industry. In the final chapter in the section, David Lingelbach considers VC in developing countries, summarising current evidence on VC activity in developing and emerging economies. He then presents a model for understanding the development of domestic VC in developing countries.
In the final chapter the editors present a roundtable with the authors, who discuss the major developments and prospects for VC as an industry, and then consider the past, present and future of VC as an area of study. This is followed by a summary identifying a number of areas for future research, targeted specifically at PhD students.
On the whole, this book proves to be a worthy successor to the previous volume, and equally indispensable. If there are criticisms, they might be that some areas – particularly relating to policy – might have been covered in more detail in some instances. Still, this does not diminish the importance or usefulness of the handbook. The organisation around key themes makes it valuable for any researcher working in the area of VC. PhD students will find it particularly valuable, as it guides the reader through major themes of recent research in a clear and concise manner. The book even could be used as a helpful supplementary text in masters level courses, providing academic background to key issues. With much progress yet to be made in the study of VC, this book gives a good picture of the advances thus far.