Skills or networks? Success and fundraising determinants in a low performing venture capital market

• Published in: Research policy 2018-02, Vol.47 (1), p.49-60
• Main Author: Milosevic, Miona
• Format: Article
• Language: English
• Subjects: Fundraising; Human capital; Social capital; Venture capital
• ISSN: 0048-7333; 1873-7625
• DOI: 10.1016/j.respol.2017.09.009

•We examine the French VC industry, which is dominated by direct government funding and tax subsidies.•Human capital (R&D, entrepreneurship, VC and investment banking experience) of VCs has a positive impact on performance.•Personal networks of VCs gained through public experience and elite education have a positive impact on the size of raised institutional funds.•VC networks gained through shared affiliation with collectors of tax-subsidized funds have a positive impact on the size of such funds. This paper provides a novel interpretation of the factors leading to low performance in venture capital (VC) markets. By using human and social capital perspectives, we investigate the relationship between the professional experience and education of VC firm managers and i) the success of their portfolio firms on one hand and ii) their fundraising activity on the other. Our study focuses on the French VC market. The French business environment is characterized by tight links between businesses and the state and by powerful elite networks, while the VC industry has been dominated by government funding and incentives since the global financial crisis. We evidence a positive relationship between task-specific human capital variables and the exit success of VC-backed firms. However, unlike the research from the US market, we find no support for the claim that success determinants impact fundraising activity. Instead, we substantiate the importance of higher social networks for raising larger funds in markets with strong networks.