Few events are more exciting in the life of a young entrepreneurial company than being able to raise venture capital. Venture capital investors are highly selective; hence getting an investment from them is considered as a quality mark for early ventures. Research has, for example, shown that companies that receive venture capital are able to attract more and higher quality employees, are more legitimate and are hence able to negotiate with more powerful partners, customers or suppliers. Their corporate governance is strengthened with a small but focused board that helps in strategic decision making.
A new pan-European research project, the VICO project, has investigated how European venture capital-backed companies develop, compared to their non-venture capital backed peers. Receiving venture capital has a positive effect on entrepreneurial companies beyond the mere effect of venture capital investors selecting the best deals. Capital expenditures, investments in R&D and productivity are higher in venture capital backed companies, and as a result they grow stronger compared to their peers. Interestingly, venture capital backed companies are more resilient in the current crisis: while non-venture capital backed companies reduce their number of employees following drops in sales, venture capital backed companies are currently still able to slightly grow in sales and in employees. Interestingly, portfolio firms have higher chances of success if they attract venture capital later on, when their products are already developed.
To read the full, original article click on this link: How Venture Capital Powers Entrepreneurial Companies
