SUMMARY
Economic Equivalence Or Social Reciprocity? Exchange Models Of German Venture Capitalists – A Grounded Theory Approach
Christiana Weber, Social Science Research Center Berlin, Hamburg, Germany
Markus Göbel, Helmuth Schmidt University, Hamburg, Germany
Barbara Weber, Private Equity Consultant, Zürich, Switzerland
Principal Topics and Key Proposition
Prior research has provided diverse theoretical frameworks that have enabled us to understand more clearly the nature of the complex relationship between Venture Capital firms (VCs) and their portfolio companies (PCs). While acknowledging the considerable analytical power of principal-agency theory in this field, we would seek to challenge its exclusive employment in VC research from both an empirical, and a theoretical point of view.
Based on social exchange theory, our key proposition is that this single economic theoretical perspective does not fully reflect the complexity nor the variety of VC-PC relationships. We seek to address these limitations by developing a complementary theoretical understanding which expands the range of the exchange types discussed in the literature so far.
Method
We have chosen the grounded theory approach, applying an explorative multi-case analysis, after Eisenhardt. Nine exploratory case studies of German venture capital activity, investigated in 2002, were based on 46 narrative guideline-supported interviews. We questioned investment professionals in the respondent VC groups about the detailed nature and range of their arrangements with portfolio firms under different performance regimes. Twenty-one dyads were explored in detail. Interview data were ‘triangulated’ by including the additional perspectives of both CEOs and company founders.
Results and Implications
Analysing our data, we demonstrate that different types of VC-PC dyads generate diverse constellations of exchange. In particular, two dominant types of relationship emerged: Type I, the ‘norm oriented principle of equivalence’, can best be understood with reference to game theory conceptualisation. The Type I VC-PC relationship is essentially a balanced dyadic exchange. Type II, the ‘calculated reciprocity of behaviour’ is best understood with reference to anthropological and sociological exchange theories. Type II dyads are organised in more complex forms of a general exchange. Each of the generic two exchange systems is defined and separated by specific self-constituting macro cultures, exchange structures, resource endowments and behaviors.
At this early stage in our work, we attempt in a first step to evaluate comparatively the two types of exchange. Nevertheless, we are still exploring the empirical derivation and conceptual justification of these two specific exchange types in order to advance the process of theory building in this field.
CONTACT: Christiana Weber, Social Science Research Center; christiana.weber@tonline.de