Frontiers of Entrepreneurship Research 1994

Frontiers of Entrepreneurship Research

Abstracts from the 1994 Edition

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    Mike Wright
    Ken Robbie
    Christine Ennew

    Centre for Management Buy-out Research
    School of Management and Finance
    University of Nottingham
    NG7 2RD

    +44 602 515494/515257

    +44 602 515503/515262

    Principal Topics
    This paper develops previous research by examining the importance of serial entrepreneurs to the venture capital industry, with particular emphasis on those who have exited from an initial investment in the venture capitalist's portfolio. The paper first elaborates a typology of serial entrepreneurs which includes the purchase of businesses as well as the foundation of new ones. Given the investment patterns of the venture capital industry, such a broad perspective is argued to be important in understanding the contribution of serial entrepreneurs. The paper then goes on to examine the extent and nature of investments in serial entrepreneurs by venture capitalists, and the processes of evaluation and assessment used.

    The study is based on a representative sample of 55 UK venture capitalists, representing a response rate of 48.7 per cent to a questionnaire mailed in late 1992 with a reminder administered in early 1993. Descriptive statistics of the extent and nature of the use made by venture capitalists of exiting entrepreneurs, and of the relative importance of the criteria and processes used by venture capitalists to appraise such entrepreneurs are presented. Differences between venture capitalists are explored.

    Major Findings
    Three quarters of respondents said that they preferred to finance an entrepreneur who had played a major role in a previous venture yet the percentage of managers used in new ventures funded by the same institution is very small. Venture capitalists do make extensive use of entrepreneurs who had previously been financed by another venture capitalist Few venture capitalists carry out a formal evaluation of exiting entrepreneurs and there is a tendency not to pursue entrepreneurs actively who have exited but rather to maintain links through informal means. In appraising entrepreneurs, previous experience was viewed as being important in providing a track record, followed by demonstrated motivation. Some importance was attached to the view that experienced entrepreneurs were more likely to achieve success again, although this factor was not rated as highly as entrepreneurial ambition and motivation.

    For practitioners, the findings indicate that previous ownership experience alone is a weak basis on which to reinvest in an entrepreneur who has exited from a venture and suggests other factors which need to be taken into account. Indications that venture capitalists rarely monitor exiting entrepreneurs systematically suggests that investment opportunities are being missed and that mechanisms might usefully be put in place to deal with these issues. For academics, the results provide further indicative support, but from a new perspective, that previous entrepreneurial experience is not always a positive factor.

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