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Investment into venture capital funds in Europe : an exploratory study

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Barnes, Simon and Menzies, Vanessa (2005) Investment into venture capital funds in Europe : an exploratory study. Venture Capital, 7 (3). pp. 209-226. doi:10.1080/13691060500258919

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Official URL: http://dx.doi.org/10.1080/13691060500258919

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Abstract

Insight into the flow of capital into venture capital (VC) funds is fundamental to our understanding of the overall flow of capital into entrepreneurial ventures. To understand the processes and criteria utilized by limited partners (LPs) in the selection of the VC funds in which they invest we studied 21 European fund-of-fund investment management firms that actively invest in VC funds. We have demonstrated that such LPs utilize structured selection processes and criteria that are comparable to those used by VCs themselves, but with important differences. Notably, we found that LPs build early consensus within the investment team via a stage we have termed ratification. In selecting VCs, quantitative measures of reputation via historical performance are important, consistent with previous findings, but we found that reputation also captures opinions from entrepreneurs, other LPs and other VCs. We found that nurturing informal relationships outside the formal limited partnership agreement is an important component of LPs' decisions to invest and that LPs may pre-allocate capital to VCs with whom a relationship exists already. We conclude that early relationship building with potential LPs is an essential prerequisite for VCs aiming to raise a first fund.

Item Type: Journal Article
Divisions: Faculty of Social Sciences > Warwick Business School > Entrepreneurship, Innovation & Management
Faculty of Social Sciences > Warwick Business School
Journal or Publication Title: Venture Capital
Publisher: Routledge
ISSN: 1369-1066
Official Date: 2005
Dates:
DateEvent
2005Published
Volume: 7
Number: 3
Page Range: pp. 209-226
DOI: 10.1080/13691060500258919
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access

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