Venture Capital Firm's Strategy Choice And Performance

In the past two decades, while the venture capital in China has been booming, it also has experienced the prominent phenomenon of retro-displacement in the investment stage, which has much at deteriorated the industry development and weakened the expected facilitation that investment should bring to the technological innovation and regional economic development. Meanwhile, the performance of venture capital firms differed from each other. It is difficult for most of venture capital firms to gain high performance; even those organizations with excellent investment records are facing tremendous pressure to maintain competitive advantage. Currently, there exist extensive discussions on the selection of venture capital strategy and investment performance improvement by foreign scholars, and many disputing conclusions have been achieved. At the time, domestic academic still focus their research on such macro problems as externalities of industry. Considering the practical background of venture capital industry of China, we believe that the relevant research should be started as soon as possible.Therefore, this study focuses on the selection of investment stage strategy and the improvement of investment performance for venture capital firms, also it extends the theoretical research in multiple dimensions by combining Upper Echelons and Network theory, introducing the two factors, the venture capitalist team and syndication network. Based on the literature and field interviews, this thesis proposes the following assumptions. First, how do the early-stage investment and the late-stage investment impact on the investment performance, while the difference of initiatives and environment of venture capital firms are not taken into consideration? Differed from past research, this study discusses the impact of strategy selection in the two dimensions of investment performance:efficiency and effectiveness. Second, what is the function of venture capitalist team in the strategic decision making? Will the venture capitalist team affect the results of strategy implementation? Which kind of venture capitalist team will benefit from the early-stage investment? Referring to the Upper Echelons theory, this paper proposes assumptions by differentiating the two dimensions of the backgrounds and the heterogeneity of venture capitalist team. Third, how does the inequality of syndication network, being the external environment for strategy implementation, affect the relationship between strategic decision making and investment performance? Which kind of network location will enable venture capital firms benefit from the early-stage investment? Referring to the Network theory, this study built its theoretical framework based on the centrality as well as structure holes of network position.In the empirical analysis, this study validated its theoretical framework and 23 hypotheses based on the data of 69 venture capital firms from 2004 to 2007 obtained through third-party database. The conclusion is pioneering to some extent considering the lack of systematic empirical analysis in the micro research.Through theoretical discussion and empirical analysis, we've achieved 4 conclusions. First, both investment efficiency and effectiveness of late-stage investment are better than those of early-stage investment when the difference of initiatives and network environment of venture capital firms are not taken into consideration. Second, venture capitalist teams with technical background and heterogeneity prefer to early-stage investment. Teams with technical background can both alleviate the negative effect of early-stage investment on the investment efficiency and gain better investment effectiveness in the early-stage investment, while the teams with heterogeneity can only achieve the former. Third, teams with financial background and entrepreneurship have no obvious preference in investment stage. However, the former teams can achieve better investment efficiency and effectiveness in the early-stage investment, while the entrepreneurship experience will cause negative impact on the investment effectiveness in the early-stage investment. Fourth, network centralization can greatly improve the investment effectiveness in the early-stage investment, while the structure hole will strengthen the negative effects of early-stage investment on investment efficiency.Conclusions listed above facilitated the understanding of relationship between strategic-decision making of venture capital firms and their investment performance. Differed from other research, the innovations of this paper are demonstrated as below: (1) This paper extended the research on the decision making process of venture capitalist teams, proved that the teams have contingent influence on the results of strategies, as well as enriched Upper Echelons theory; (2) This paper clarified the contingent effect of syndication network on the relationship between strategic-decision making and investment performance, and confirmed the differentiation of network location. Both provided reference to the discussion of the duel characteristics of network; (3) Based on the analysis of the relationship between strategic-decision making and investment performance, this paper found that the coupling of early-stage investment, the technical and financial backgrounds of venture capitalist teams as well as the network centralization will generate better investment effectiveness than that of later-stage investment, which provided positive reference to venture capital firms as well as governments.Of course, regardless of the academic attainments, there are still a lot to be improved. In the last part of this paper, the author presents the limitations of this study and several issues that need to be studied in the future.