Introduction

The aim of this chapter is to investigate portfolio involvement strategies of the VC firms. In this context, portfolio involvement refers to the active participation by venture capital (VC) firms in various aspects of the investee venture. Specifically, we assess their involvement levels in six major areas – human resources (HR), business operations, marketing and business development, financial activities, business strategy, and crisis management. Further, we compute the aggregate VC involvement index and then cluster (and profile) the VC firms based on the same into three distinct categories: most intensely involved VC firms, moderately involved VC firms, and least involved VC firms.

To start with, it is important to reiterate that VC firms significantly differ from the other conventional financial intermediaries (namely banks and equity markets) in one principal aspect. Compared to the other financial mediators, VC firms are regarded as active and personalized sources of funding. Thus, the VC firms not only provide finance but are also known to actively intervene in other operational and strategic aspects of the investee ventures (such as administration, marketing and sales, recruitment, product development, and so on). This activism is necessitated by the need to tackle the risks emanating from agency problems associated with funding ventures in nascent and emerging domains (Elango et al. 1995; Sapienza, Manigart, and Vermeir 1996). While such agency risks exist in the developed VC markets as well, they pose difficulties in emerging markets with a weak institutional support (Wright, Lockett, and Pruthi 2002).

Accordingly, the objective of this chapter is manifold. First, to identify, categorize, and quantify the level of involvement of the VC firms in various aspects of the investee companies. Second, to divide the VC firms into distinct segments based on their aggregate intensity of involvement. Third, to identify the underlying attributes that drive this variation in involvement levels.

The rest of this chapter is organized as follows: To start with, we propose a conceptual framework based on literature and arrive at testable hypotheses based on the same. We then move on to the description of the research design for this study. This is then followed by the discussion of results. Finally, we summarize our findings and derive managerial implications.