سرمایه انسانی CEO ، تیم های مدیریت ارشد، و دستیابی به سرمایه مخاطره آمیز در سرمایه گذاری های فن آوری های جدید : تحلیل تجربی

We combine signalling and human capital theory to analyze how competencies of new venture CEOs impact the amount of money technology ventures acquire in venture capital (VC) financing rounds. Using data on 117 financing events in the biotechnology industry, we show that education in management, founder-based firm-specific experience, international experience, and industry-specific experience of the CEO impact the VCs’ financial commitments. Moreover, we find that the effects of management education and industry experience are moderated by the size of the venture's top management team. We discuss the implications of these findings for the research literature on technology ventures and venture capital.

In high technology industries, product development is often an extremely time- and money-consuming process. For example, the development of biopharmaceutical products requires several hundreds of millions $US and more than 10 years, with most product candidates failing during the R&D process (DiMasi, 1995 and DiMasi et al., 2003). Therefore it is one of the major challenges for technology venture managers to acquire sufficient capital to finance the product development process (Fildes, 1990 and Nosella et al., 2006). Since most high-technology ventures turn to the venture capital (VC) market to finance their R&D activities (Gompers and Lerner, 2004) the scope of this research is to understand the determinants of VCs’ financial commitments to new ventures. This is important because it helps new venture managers to maximize the amount of capital acquired from their investors. Existing literature on investment decisions of VCs suggests that the experience and skills of the ventures’ top management team are crucial for VCs’ financial commitments (Tyebjee and Bruno, 1984). However, so far existing literature has paid little attention to how the characteristics of the leader of that team – that is, the CEO – impact the VCs’ investment decisions. This is surprising given that several studies have emphasized the impact of CEO competencies on the performance of small and new ventures (Andrews and Welbourne, 2000, Boone et al., 1996, Eisenhardt and Bourgeois, 1988, Merz et al., 1994, Miller and Toulouse, 1986b and Wasserman, 2003). Our study combines signalling theory (Spence, 1974) and human capital theory (Becker, 1975) to investigate how CEO competencies influence the financial commitments of VC investors to new technology ventures. We argue that education and experiences of the CEO signal to the VC market future growth and performance potential of the venture (Spence, 1974) and thereby impact the amount VCs are willing to invest in that venture. Moreover, we argue that the size of the venture management team moderates the strength of these signals and thus the impact of the CEO's education and experience on the amount of finance VCs commit to the venture. We test our hypotheses with data on 117 financing events of 84 entrepreneurial ventures in the biopharmaceutical industry. In short, this article makes the following contributions. First, scholars have investigated how characteristics of the new venture top management team influence the investment decisions of VCs, but neglected the specific competencies of the CEO as the leader of that team. We focus on the CEO. Second, while studies have analyzed the direct impact of managerial characteristics on capital acquisition success, only recently they have started to investigate potential interactions between variables (Dimov et al., 2007 and Shepherd et al., 2000). We show that the impact of CEO competencies on investors’ financial commitments is moderated by the size of the venture's TMT. Finally, existing literature has focused on distinguishing ventures that receive VC funding from ventures that fail to do so, but has mainly neglected that ventures that receive funding do so to a varying extent. Our article explains variance in the amount of money new ventures acquire in VC financing rounds. We proceed as follows. In the next section, we develop our theory and hypotheses. We then describe our data and methodology before we present our results. Subsequently, we discuss our findings, highlight limitations of our study, and draw final conclusions and implications.

The results of our study emphasize that investors see the human capital of the CEO not independent of the TMT surrounding her or him. Young ventures vary in the size of their TMT, and several reasons may account for this variance. For example, CEOs who are aware of their own shortcomings and lacking competencies may try to hire additional TMT members who bring in experiences and knowledge. Further, VC investors are known to play an active role in professionalizing the management team of their investees (Hellmann and Puri, 2002). To the extent the CEO is not able to effectively manage the venture alone VCs may insist that the TMT is supplemented with additional highly qualified and experienced managers. Thus, there is variance in TMT size in young ventures, and our results indicate that team size moderates the impact of CEO competencies on the VCs’ financial commitments to the venture. First, as expected we found that management education of the CEO is beneficial for ventures with large teams, but detrimental for ventures with small teams. One possible explanation is that this type of education signals to investors that CEOs are capable to mitigate processes in the TMT such as conflict, communication problems, low team cohesion, and coordination problems which are more likely in large than in small teams (Amason and Sapienza, 1997, Carron and Spink, 1995 and Haleblian and Finkelstein, 1993). Perhaps in small teams management education of CEOs is considered as a weakness by investors because this type of education leads to a tendency to establish formal structures and processes (Hambrick and Mason, 1984) which may hurt the dynamism and flexibility of the venture and its TMT. We were not able to measure TMT processes directly, but scholars have introduced measures for TMT conflict and cohesion (see, e.g. Ensley et al., 2002). Future research may use these measures to enhance our understanding of venture CEO human capital in TMT processes. Second, another interesting finding of our study is that the impact of industry-specific experience of the ventures’ CEOs is (as expected) positive for small TMTs, but negative for large TMTs. Why may industry-specific experience hurt in this case? One possible explanation is that VCs see industry-specific human capital and financial capital as substitutes for one another. That is, CEOs who have a strong industry background may, in the VCs’ opinions, be able to acquire the finance needed via other sources than the capital markets. For example, these CEOs may use their industry-specific contacts to form alliances with other corporations and thereby acquire capital or reduce R&D costs (Eisenhardt and Schoonhoven, 1996). Indeed, Chandler and Hanks (1998) found that founders’ human and financial capital can substitute for another. In contrast, when the TMT is small and few team members bring social capital to the TMT, industry-specific experience of the CEO appears to be more critical to signal to VC investors that the team has enough social capital to achieve high venture performance. The moderating effect of TMT size also shows that the decision policies of VC managers are complex highlighting the need for a contingency approach for future research. For example, experimental (Franke et al., 2006, Muzyka et al., 1996 and Shepherd, 1999) and survey (MacMillan et al., 1985 and Tyebjee and Bruno, 1984) studies have concentrated on the investigation of direct effects, but not included potential interactions between VC decision cues. Only recently have scholars started to investigate contingent decision policies (Dimov et al., 2007 and Shepherd et al., 2000). Focusing only on direct effects may not only provide a simplified picture of VC decision making, but also bears the danger that variables yielding non-significant direct effects are erroneously considered as non-important for VCs’ decisions. These impacts may be significant when they are considered in an interaction term. For example, our study found that the direct effect of industry-specific experience on VC financial commitment is non-significant in the main-effects only model, but that there is a significant interaction between industry-specific experience and team size. Fig. 1 demonstrates why this is the case—the venture CEO's management education only has a positive effect for large, but a negative effect for small teams. In contrast, industry-specific experience does only have a positive effect when the CEO operates in the context of a small team, but a negative effect for large teams. The main effect represents the combination of positive and negative impact and appears as weak and non-significant. Thus, we would like to encourage scholars to view the investment decisions of VCs as more complex and consider interactive relationships between individual decision cues. Whereas previous work on VC decision making has analyzed the VCs’ decisions whether to fund business plans or not (e.g. MacMillan and Narasimha, 1987), our study focuses only on funded ventures and uses the amount of money VCs commit to these ventures as the dependent variable. Both are different decisions. Whereas the decisions analyzed previously mirror the initial and second screening of investment opportunities by the VCs, our dependent variable is more reflective of later steps of the investment process such as deal valuation and deal structuring (Wright and Robbie, 1998) because all ventures in our sample successfully passed the first steps. Although we do not provide any ranking of potential decision cues, the fact that CEO competencies explain variance in VCs’ financial commitments indicates that human capital properties of the CEO/TMT are also important for decisions in later steps of the VC investment process. Please note that in our results team size, which has been used as an indicator of human capital and managerial competencies at the team level (Eisenhardt and Schoonhoven, 1990 and Haleblian and Finkelstein, 1993), also has a direct, significant effect on the VCs’ financial commitments. Therefore, the characteristics of the TMT appear to play an important role throughout the VCs’ investment process by not only influencing the decision whether to consider a venture at all for funding or not, but also the decision how much funding the venture gets. More generally, our study extends the literature on CEOs in small and new companies. While a host of studies exists that focuses on the role of CEOs in large and established companies (e.g., Carpenter et al., 2001, Haleblian and Finkelstein, 1993 and Hayward and Hambrick, 1997), much less research has been done on CEOs in small and/or new firms. So far scholars have analyzed the impact of CEO experiences on growth and profitability (Boone et al., 1996 and Miller and Toulouse, 1986b) and strategic decision making (Datta et al., 2003). Moreover, Merz et al. (1994) found that the decision making style and the strategic orientation of CEOs impact the sales and profitability patterns of new ventures. None of the existing studies have, to the best of our knowledge, investigated the impact of venture CEOs on the money these ventures acquire at the VC markets. Thus, we add to this stream of literature by demonstrating the importance of the CEO in signalling managerial competence to the VC market. For practicing new venture managers our study demonstrates that having the right person as a CEO may serve as an important means to maximize the amount of money the ventures can acquire in VC financing rounds. Founder-based firm-specific experience and international experience appear to be beneficial for most ventures. Second, the team size is an important moderator of the VCs’ financial commitments. CEO characteristics and team size are linked to each other and there is no on-size-fits-all solution when CEOs or the size of the management team are chosen. Ventures should determine both conjointly rather than independently in order to maximize their capacity to acquire funding from investors. Finally, our study may help VC investors to better understand their own decision policies and be more accurate when deciding on the money they commit to new ventures.