1 Advice and Monitoring in Venture Finance * (original) (raw)
This paper studies the advising and monitoring activities of 14 European venture capitalists (VCs) in 74 entrepreneurial firms. We distinguish between VC advising versus monitoring activities based on the congruence versus dissonance with entrepreneurial interests. The data indicate that the allocation of greater cash flow and control rights to the VCs gives rise to more intensive VC advice, but not more intensive monitoring. VC monitoring is attributable to the need for monitoring due to entrepreneurial firm-specific characteristics. The data further indicate a strong effect of portfolio size on both advice and monitoring, consistent with recent theoretical work on the optimal size of VC portfolios. Finally, the data indicate a country’s legality index is closely connected with the propensity for conflicts between entrepreneurs and their investors. The results are robust to the potential for endogeneity, among various other robustness checks.
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