Book Details

ISBN:    978-3-89644-951-1

DOI:    https://doi.org/10.3790/978-3-89644-951-1

Published online:    2020-08

Edition:    1

Language:    English

Pages:    346

Keywords:    High Potential Companies Provision of Resources Venture Capital Firms Contractual Agreements High Potential Companies Provision of Resources Venture Capital Firms Contractual Agreements High Potential Companies Provision of Resources Venture Capital Firms Contractual Agreements High Potential Companies Provision of Resources Venture Capital Firms Contractual Agreements High Potential Companies Provision of Resources Venture Capital Firms Contractual Agreements High Potential Companies Provision of Resources Venture Capital Firms Contractual Agreements High Potential Companies Provision of Resources Venture Capital Firms Contractual Agreements High Potential Companies Provision of Resources Venture Capital Firms Contractual Agreements

Author Details

Christian Fingerle

Subjects:    Business & Management ,

Pricing

Institution:    €89.90 (incl. local VAT if applicable)

Individual:    €89.90 (incl. local VAT if applicable)

Section Title	Page	Action	Price
Foreword	V
Acknowledgments	VII
Table of Contents	IX
Table of Figures	XV
Table of Abbreviations	XIX
Table of Interview Partners	XXI
1 Introduction	1
1.1 Relevance of Smart Money	1
1.2 Aims of Analysis	4
1.3 Research Approach and Dataset	6
1.4 Structure of Analysis	10
2 Characteristics of High Potential Companies	13
2.1 Introductory Remarks	13
2.2 Fundamentals of the Resource-based View	13
2.2.1 Resources in Strategic Management Research	13
2.2.2 Resources and Competitive Advantage	17
2.2.3 A Comprehensive Resource-based View	19
2.3 Resource Profile of High Potential Companies	24
2.3.1 Resource Needs in Stage Models	24
2.3.2 Resource Categorization	26
2.3.3 Technological Resources	27
2.3.4 Financial Resources	28
2.3.5 Managerial Resources	31
2.3.6 Personnel Resources	33
2.3.7 Physical Resources	34
2.3.8 Organizational Resources	34
2.3.9 Reputational Resources	35
2.3.10 Social Resources	37
2.4 Mechanisms to Fill the Resource Gap	38
2.5 Return and Risks of Investments in High PotentialCompanies	39
2.5.1 Investment Decision Trade-Off	39
2.5.2 High Expected Return	40
2.5.3 High Risks	44
2.5.3.1 Liability of Newness	44
2.5.3.2 Liability of Smallness	45
2.5.3.3 Uncertainty of Supply	45
2.5.3.4 Uncertainty of Demand	46
2.5.3.5 Competitive Uncertainty	47
2.5.3.6 Dependency on Founders	47
3 Business Model of Venture Capital Firms	49
3.1 Introductory Remarks	49
3.2 Definition of Business Model Concept	49
3.3 Customers of Venture Capital Firms	51
3.4 Value Creation Architecture of Venture Capital Firms	54
3.4.1 Organizational Structure	54
3.4.2 Personnel Structure	59
3.4.3 Refinancing Process	62
3.4.3.1 Overview	62
3.4.3.2 Fundraising Process	63
3.4.3.3 Investor Relations Process	66
3.4.3.4 Distribution of Returns Process	68
3.4.4 Investment Process	69
3.4.4.1 Overview	69
3.4.4.2 Investment Origination	70
3.4.4.3 Investment Due Diligence	73
3.4.4.4 Investment Structuring	77
3.4.4.5 Investment Development	81
3.4.4.6 Investment Exit	82
3.5 Customer Value Proposition of Venture Capital Firms	87
3.5.1 Enhancement of Performance of Portfolio Companies	87
3.5.2 Enhancement of Asset Allocation of Investors	90
3.6 Profit Model of Venture Capital Firms	99
3.6.1 Management Fee	99
3.6.2 Participation in Value Creation	100
4 Venture Capitalists’ Influence through Contractual Agreements	103
4.1 Introductory Remarks	103
4.2 Deal-specific Risks for Venture Capital Firms	103
4.2.1 Risk of False Investment Decision	103
4.2.2 Risk of Managerial Opportunism	104
4.2.3 Risk of Competitive Opportunism	107
4.2.4 Risk of Unfavorable Decision-Taking	108
4.2.5 Risk of Exit Obstruction	109
4.3 Influence through Contractual Provisions	110
4.3.1 Information Rights	110
4.3.2 Conversion Rights	111
4.3.3 Control Rights	113
4.3.3.1 Voting Rights	113
4.3.3.2 Veto Rights	114
4.3.3.3 Supervisory Board Representation Right	115
4.3.4 Management Covenants	117
4.3.4.1 Affirmative Covenants	117
4.3.4.2 Non-Compete Clause	118
4.3.4.3 Vesting	119
4.3.4.4 Representations and Warranties	120
4.3.5 Milestone Agreements	121
4.3.5.1 Milestones	121
4.3.5.2 Earn-out	122
4.3.5.3 Ratchets	123
4.3.5.4 Management Dismissal	123
4.3.5.5 Staging	124
4.3.6 Cash Flow Rights	126
4.3.6.1 Dividend Preference	126
4.3.6.2 Liquidation Preference	127
4.3.6.3 Anti-Dilution Protection	128
4.3.7 Preemptive Rights	130
4.3.7.1 Right of First Refusal	130
4.3.7.2 Right of First Offer	131
4.3.8 Disinvestment Rights	132
4.3.8.1 Tag-Along Right	132
4.3.8.2 Drag-Along Right	133
4.3.8.3 Redemption Right	133
4.3.8.4 Registration Rights	134
4.3.8.5 Cancellation Right	135
4.3.9 Summary	137
4.4 Loss of Formal Autonomy through Venture Capital Firms	138
5 Venture Capitalists’ Influence through Provision of Resources	141
5.1 Introductory Remarks	141
5.2 Content of Resource Provision	141
5.2.1 Activities of Venture Capital Firms	141
5.2.2 Certification through Venture Capital Firms	144
5.2.3 Resource-Based View on Activities of Venture Capital Firms	145
5.2.3.1 Redefining Activities as Resources	145
5.2.3.2 Direct vs. Indirect Resource Provision	147
5.3 Determinants of Resource Provision	148
5.3.1 Differences in Intensity of Resource Provision	148
5.3.2 Size of Investment	151
5.3.3 Performance of Portfolio Company	153
5.3.4 Stage of Portfolio Company	156
5.3.5 Technology Intensity of Portfolio Company	156
5.3.6 Venture Capitalists’ Incentives for Resource Provision	157
5.3.7 Syndication	158
5.4 Loss of Real Autonomy through Venture Capital Firms	159
5.4.1 Sources of Venture Capital Firm’s Power	159
5.4.2 Loss of Real Autonomy by Levels of Management	160
5.4.3 Loss of Real Autonomy by Levels of Decision-taking	164
5.4.4 Benefit of a Loss of Autonomy	167
6 Case Study Bullith Batteries AG	169
6.1 Case Description	169
6.1.1 Preliminary Remark	169
6.1.2 Development before First Round Financing	169
6.1.3 First Round Financing	174
6.1.4 Further Development until Second Round Financing	176
6.1.5 Second Round Financing	184
6.1.6 Further Development	186
6.2 Case Analysis	187
6.2.1 Gi Ventures’ Influence through Contracting	187
6.2.1.1 Investment Agreement Structure	187
6.2.1.2 Influence on Deal-specific Risks	191
6.2.1.3 Influence on Management’s Formal Autonomy	192
6.2.2 Gi Ventures’ Influence through Resource Provision	193
6.2.2.1 Influence on Resource Pool	193
6.2.2.2 Influence on Management’s Real Autonomy	197
7 Case Study GPC Biotech AG	201
7.1 Case Description	201
7.1.1 Development before First Round Financing	201
7.1.2 First Round Financing	203
7.1.3 Development until Second Round Financing	206
7.1.4 Second Round Financing	213
7.1.5 Further Development and MPM Capital’s and TVM’s Exit	215
7.2 Case Analysis	219
7.2.1 MPM Capital’s and TVM’s Influence through Contracting	219
7.2.1.1 Preliminary Remark	219
7.2.1.2 Investment Agreement Structure	219
7.2.1.3 Influence on Deal-specific Risks	223
7.2.1.4 Influence on Management’s Formal Autonomy	224
7.2.2 MPM Capital’s and TVM’s Influence through Resource Provision	226
7.2.2.1 Influence on Resource Pool	226
7.2.2.2 Influence on Management’s Real Autonomy	230
8 Case Study varetis AG	235
8.1 Case Description	235
8.1.1 Development before First Round Financing	235
8.1.2 First Round Financing	238
8.1.3 Development until Second Round Financing	241
8.1.4 Second Round Financing	245
8.1.5 Further Development and BayBG’s Exit	247
8.2 Case Analysis	251
8.2.1 BayBG’s Influence through Contracting	251
8.2.1.1 Investment Agreement Structure	251
8.2.1.2 Influence on Deal-specific Risks	256
8.2.1.3 Influence on Management’s Formal Autonomy	258
8.2.2 BayBG’s Influence through Resource Provision	259
8.2.2.1 Influence on Resource Pool	259
8.2.2.2 Influence on Management’s Real Autonomy	263
9 Comparative Case Study Analysis	267
9.1 Venture Capitalists’ Influence through ContractualAgreements	267
9.1.1 Contracting Negotiations	267
9.1.2 Content of Investment Agreements	268
9.1.3 Portfolio Companies’ Loss of Formal Autonomy	269
9.2 Venture Capitalists’ Influence through Resource Provision	271
9.2.1 Direct Resource Provision	271
9.2.2 Indirect Resource Provision	274
9.2.3 Dynamic Aspects of Resource Provision	278
9.2.4 Venture Capitalists’ Influence on Competitive Advantage	279
9.2.5 Portfolio Companies’ Loss of Real Autonomy	281
10 Conclusion and Further Implications	285
10.1 Conclusion	285
10.2 Implications for Researchers and Practitioners	288
11 References	293