Selection and support strategies in venture capital financing: high-tech or low-tech, hands-off or hands-on?

Abstract

The advantage of specialization in venture capital financing makes the presence of generalist investors perplexing. In order to understand their function, the authors investigate the knowledge resource bases of both generalist and specialist venture capital funds, the types of enterprises they select and their corresponding support strategies. Arguing that differences in strategy can be attributed to differences in knowledge, the authors hypothesize that specialists select high-tech projects; generalists, on the other hand, select low-tech projects. Specialists support ‘hands-off’; generalist support ‘hands-on’. These hypotheses are tested with a dataset of 103 venture capitalists in Austria, Germany and Switzerland. The empirical results from OLS-regressions show a close relationship between knowledge and selection as well as support strategies. These results invite further research on differences in venture capitalists' strategies as they relate to differences in knowledge.