INSTALACIÓN DE RIELES

As illustrated in figure 2.2, VCs act as intermediaries between capital providers and seekers of venture capital. They can be differentiated according to various criteria, such as the ownership structure, according to their degree of specialization regarding industries or the phases of a company's lifecycle they invest in,54 or the degree of management support provided.55 However, while these classifications are partially not free of overlaps,56 it can be distinguished whether there exists a direct or indirect investment contract between capital providers and capital seekers.57 This systematic is illustrated in the figure below:

Providers of venture capital

Direct investment (informal venture capital)

Indirect investment (formal venture capital)

„Impure“ intermediaries Captive VCs „Pure“ intermediaries •Business angels •Corporate VCs •Institutional captive VCs •Independent VCs Semi-captive VCs •Governmenatally funded VCs •Other semi-captive VCs

Figure 2.7: Overview of providers of venture capital58

In the former case, capital provider and capital seeker directly enter an investment contract. Capital providers of direct investments are wealthy private investors, which are denoted as the so-called business angels.59

54 _{The different investment stages will be explained in section 2.1.3.3. Also in this study, an analysis will} be performed based on the classification of VCs into a 2x2-matrix with one dimension referring to the industry focus, and the other dimension being the focus on investment stages. See sections 3.4.5.3 and 6.3.5.1.

55 _{For detailed discussion on the specialization of VCs, see Sorenson/Stuart (2001), pp. 1562 ff.;} Norton/Tenenbaum (1993), pp. 431ff. Further information, for example, on management support provided, see Zider (1999), p. 46; Fredriksen et al. (1990), pp. 503-505; Gifford (1997), pp. 459 ff. 56 _{For example, publicly held VCs may virtually act like a privately held VC.}

57 _{For further information on details of investment contracts, see Schefczyk (2004), p. 27 and pp. 46-56.} 58 _{According to Schefczyk (2004), p. 23; Zemke (1995), pp. 82 ff.; Nathusius (2005), p. 23.}

59 _{For an excellent overview of and study on the informal venture capital market in Germany, see Brettel} (2004). On a comparison of business angels and VCs and the Scandinavian market, see, for example,

In the case of indirect investments, VCs act as intermediaries between the original capital providers and portfolio companies. This is also referred to as formal venture capital.60 These intermediaries can further be segmented according to the underlying ownership structure, i.e., independent, captive and semi-captive VCs.61 According to the definition of the BVK, in independent VCs, no shareholder owns more than 20% of the shares, in semi-captive firms at least one owner holds between 20% and 50% of the shares, and in captive firms one owner accounts for more than 50% of the company's shares.62

Independent VCs actively raise funds from multiple investors such as pension funds, industrial firms, insurance companies, or banks. These capital providers regard their investment as one of many investment alternatives with the objective to maximize the return on investment. However, independent of their investors, these VCs can autonomously decide upon their investments, the reason for which they are called 'pure' intermediaries.63 Usually, funds raised by independent VCs are temporarily limited and the VC normally intends to maximize its financial return, neglecting strategic objectives. 'Impure' intermediaries can be grouped into captive and semi-captive VCs. Captive VCs comprise legally independent subsidiaries of industrial firms or of financial institutions. Investment decisions are not made independently from the parent company, since this is the exclusive provider of funds. Normally, members of the parent company and of the

Osnabrugge (1998a), Osnabrugge (1998b), Osnabrugge (2000), or Reitan/Sorheim (2000). Exemplary for a study on business angels in the US is, for example, Wetzel (1983). For a review on research of business angels, see Freear/Sohl/Wetzel (2002).

60 _{See Nathusius (2001), pp. 63 ff.; Zemke (1995), pp. 106 ff.; Christen (1991), pp. 46 ff.; Schröder} (1992), pp. 72 ff.; Schmidtke (1985), pp. 110 ff.. Furthermore, within formal venture capital it can be differentiated between project-oriented investments and funds-oriented investments. In project-oriented investments, first the venture capital provider selects a portfolio company, in which to invest and afterwards acquires investors to provide the capital needed. Often with the project-oriented, specific financing structures are developed for large buyouts or late stage investments. For funds-oriented investments, funds are raised from capital providers first, which are then invested into multiple portfolio companies. See Klemm (1988), pp. 40 ff.

61 _{See Schefczyk (2004), p. 70.}

62 _{See BVK (2004), p. 150. The BVK also provides the distribution of investments over the categories} independent, captive, and semi-captive. In 2004, independent VCs accounted for 55.1%, captives for 27.5%, and semi-captives for 6.2% (the remainder of 11.2% is given as unidentified). See BVK (2005c), p. 14.

Venture Capital 22

captive VC together come to an investment decision.64 Corporate VCs often invest not only to maximize the financial return, but also due to strategic reasons. These include, for example, access to new and innovative technologies and resources, access to distribution channels, or the chance to win the young company as a future business partner. In addition, often the results of scientific research done for and by start-ups are of special interest for larger corporations.65

In contrast to captive VCs, funds raised in semi-captive VCs originally come from multiple investors. As in captive VCs, decisions are made by an advisory council, to which managers of the VC and of the capital-providing firms belong. However, in most cases, the maximization of financial return is the primary objective.66 One particular kind of semi-captive firms are governmentally-funded VCs. In most cases, shareholders of these firms are governmental authorities that do not primarily invest in order to maximize the return on investment but to support and promote the economy, often with a regional focus. Therefore, these companies also perform an economic-political mission.67

Besides through indirect investments, venture capital can be directly transferred from a wealthy private investor (business angel) to the portfolio company without interposing an intermediary from the standardized or formal venture capital market.68 Business Angels invest their private capital as equity capital in young, innovative businesses.69 Although this type of investments is not new,70 business angels and their investments have received

64 _{See Zemke (1995), p. 85. Sometimes, according to Zemke (1995), the term 'captive VC' solely refers to} financial institutions. However, since both, VCs of industrial firms and of financial institutions, are owned by the parent company by the majority (more than 50% of the company's shares), both forms are included into 'Captives' for the purpose of this study.

65 _{See Schefczyk (2004), p. 71. For further literature on this topic, see Gompers/Lerner (1999);} Maula/Autio/Murray (2005); Siegel/Siegel/Macmillan (1988); Hagleitner (2000); Ollig (2001).

66 _{See Zemke (1995), p. 86.}

67 _{See Wöhe/Bilstein (1998), p. 141; Brinkrolf (2002), p. 23; Schefczyk (2004), p. 71. For further} discussion on governmentally-funded VCs, see Posner (1996); Baier (2000); Nachtkamp (1986). 68 _{See Schefczyk (2004), p. 71.}

69 _{For an excellent overview of the informal venture capital market in Germany, see Brettel (2004). Also} see Brettel/Jaugey/Rost (2000).

70 _{Examples of firms, that have meanwhile developed into large international companies, are Ford and the} former Mannesmann. Henry Ford and the Mannesmann family have both been supported by business angels. Also, Christoph Columbus has been financed by private investors, who participated in the risk of a loss as well as in potential goods. See Leopold/Frommann (1998), p. 8; Gaston (1989), p. 2; Tschammer-Osten (1996), pp. 718 f.

significant attention in academic literature over the last 25 years. Business angels differ significantly from formal investors with respect to investment motives, invested volumes, stages of investment and expectations regarding the return on investment. They prefer to invest in very early stages of a business, especially with a focus on start-ups with innovating technologies.71 Often, the primary objective is not to maximize the return on their investment but to participate in the founding and development of a business or technology, enjoying the fun they gain from helping the founders. Since business angels are often wealthy individuals with an entrepreneurial or management background, they are able to support the founders with their know-how and expertise.72 However, for the purpose of this study, it is abstracted from the group of business angels, so that the focus is laid on the formal venture capital market.