Indirect, externally managed CVC was defined in Chapter 2 as the process by which a non-financial company invests as a limited partner in an independent venture capital fund. This fund is managed by experienced venture capitalists and can be either ‘multi-investor’ or ‘client-based’ (Honeyman, 1992). The identification of non-financial companies as limited partners in venture capital funds is particularly significant given that fund managers are increasingly encountering problems in raising funds from institutional investors (e.g. insurance companies and pension funds). In Chapter 2, the pressures on fund managers to realise higher returns in shorter time periods were noted, along with the increasing ambivalence of institutions to investments in high risk early stage and technology-based deals. Despite record fund-raising figures for members of the BVCA in 1994 (BVCA, 1995a), the majority of these funds were raised by MBO/ MBI specialists and not classic venture capitalists making early stage technology investments.
The findings outlined in Chapters 3 and 4 imply that, unlike other limited venture capital partners, non-financial companies are interested in investing in classic venture capital funds. This clearly reflects corporate objectives for making indirect venture capital investments, and specifically their desire to obtain a window on a wide range of early stage new technologies. Consequently, indirect CVC investment has been found (Chapter 4) to be a potentially valuable source of finance for small firms, and in particular TBFs that are in the early stages of their development (considered in more detail in Chapter 6). However, in order for the potential of the corporate sector as an alternative finance source for classic venture capital funds to be properly understood there is a need to examine the role of non-financial companies from the perspective of the fund manager.