Academic journal article Entrepreneurship: Theory and Practice

Venture Capitalists as Catalysts to New Venture Internationalization: The Impact of Their Knowledge and Reputation Resources

Academic journal article Entrepreneurship: Theory and Practice

Venture Capitalists as Catalysts to New Venture Internationalization: The Impact of Their Knowledge and Reputation Resources

Article excerpt

Venture Capitalists (VC) play an important role in influencing the strategic direction of the firms in which they invest. The findings of this study reveal that VCs can serve as a catalyst to new venture internationalization through the provision of knowledge and reputation resources. Furthermore, the international knowledge of a VC is more positively related to new venture internationalization when the VC is also reputable.

Introduction

Many high-growth international new ventures receive financial backing from venture capitalists (VCs) (Makela & Maula, 2005). Existing research validates that in addition to the financial resources that VCs transfer to the venture, VCs add value and influence the strategic direction of their portfolio companies through their involvement (e.g., Fried, Bruton, & Hisrich, 1998; Gorman & Sahlman, 1989; Lerner, 1995; MacMillan, Kulow, & Khoylian, 1989; Sapienza, 1992; Sapienza, Manigart, & Vermier, 1996). Thus, VCs are in a position to serve as a catalyst to new venture internationalization. Yet, we know little about the relationship between VC ownership and new venture internationalization, as only limited efforts have been made to begin to explore this relationship.

There are two notable studies that have begun to shed light on this topic. First, George, Wiklund, and Zahra (2005) argued that VCs influence the proclivity of small and medium-sized enterprises (SMEs) to take risks and to expand their internationalization efforts. While the firms in their study were not new ventures, SMEs share many of the same attributes and face similar challenges in internationalizing and are thus relevant to the study of new ventures. Interestingly, they found weak statistical support between VC ownership and international scale, suggesting that the relationship is likely important. Yet, no support was found between VC ownership and international scope. In their future research directions, they invite research that includes the experiences of VCs in examining the relationship between VCs and firm internationalization. In the second study, Carpenter, Pollock, and Leary (2003) utilized reasoned risk taking and agency perspectives in analyzing a sample of high-technology ventures that underwent an initial public offering (IPO) and that were 10 years of age or less. Counter to their hypothesis that there would be a positive relationship between VC backing and firm internationalization in high-technology IPO firms, they found a significant negative effect. Only when the VC placed an internationally seasoned director on the board was the relationship significantly positive. Their findings underscore the complexity of the relationship between VCs and new venture internationalization.

While these studies offer great value to the literature, one of their limitations is their focus on a single attribute of the VCs, such as the extent of ownership or international experience. Drawing on the resource-based view, the purpose of this article is to shed insight into multiple resources that VCs bring to a new venture and in particular, how intangible resources individually and jointly contribute to new venture internationalization. While the financial resources invested by VCs likely enable internationalization by allowing the new venture to exhibit higher levels of strategic aggressiveness (McDougall, 1989; McDougall, Oviatt, & Shrader, 2003) and enter geographic markets on a larger scale (George et aI., 2005), it is also possible that VCs lacking the knowledge resources to support internationalization might choose to discourage such a strategy. Furthermore, although somewhat neglected in the context of new venture internationalization to date, existing research highlights the importance of the reputational resources that a VC has to offer (Chang, 2004; Fried & Hisrich, 1995; Gulati & Higgins, 2003). Thus, we first explore in this article whether or not the international knowledge and reputation resources of VCs influence new venture internationalization. …

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