VENTURE CAPITAL INVESTMENT: MOTIVATIONS OF THEIR SUPPLIERS AND USERS IN THE NETHERLANDS
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This research set out to find the motivations and abilities that affected the decision of venture capitalists and early stage new technology based firms to provide and accept early stage venture capital. A behavioral perspective was used to build a conceptual framework of intrinsic motivations, extrinsic motivations and abilities that could induce or prevent the provision or acceptance of venture capital at a micro-level. A sample of venture capitalists and a sample of new technology based firms were then surveyed digitally on their motivations with both perception indicators and a set of behavioral indicators related to their decision to engage in venture capital funding. The results indicate that late stage Venture Capitalists experience four barriers preventing expansion into early stage investments, namely low return/risk rates of early stage deals, lack of sector experience, the potential reputational harm of early stage investments and the different time investments required for an early stage portfolio. Early stage oriented Venture Capitalists experience no lack of capital or business proposals, but are likely limited by human capital constraints. On the receiving end, New Technology Based Firms do not identify the added value of the VCs and are drawn to its’ substitutes instead. Lack of local involvement of the VC, distrust of the references of intermediaries and unsatisfactory negotiation results further decrease the acceptance rate of venture capital. Policy makers must address the current informational market failure and beware of a potential supply side human capital shortages on the early stage VC market. Quantitative investigation at micro level into the behavior of market level actors is still accompanied with significant conceptual and practical challenges. However, several widely accepted effects could not be confirmed at the micro level and some findings even appeared to contradict current beliefs. These novel findings indicate that further micro-level research of market actors can increase the understanding of the dynamics of the venture capital market by providing valuable new insights.