Mapping the Landscape of Value Creation in Venture Capital: A Comparative Review of Existing Approaches
Advisor: Dr. Sarah Theinert (UVC Partners)
Start: ASAP
Background:
Value creation has become a pivotal aspect of the venture capital (VC) industry, with leading firms adopting innovative strategies to differentiate themselves beyond providing financial capital. From network-driven approaches like Andreessen Horowitz’s (A16Z) platform model to hands-on operational support and sector-focused mentorship, VC firms employ various methods to help startups scale. While some VCs focus on leveraging extensive networks and operational expertise, others emphasize talent acquisition, strategic guidance, or niche ecosystem building. Despite its significance, the diversity of value creation approaches has not been systematically categorized or evaluated, leaving a gap in understanding the range and effectiveness of these practices.
Research Objective:
This thesis aims to systematically review, categorize, and compare different value creation approaches in the venture capital industry. It will focus on identifying common practices, unique strategies, and emerging trends while evaluating how these approaches contribute to the growth and success of portfolio companies.
Research Questions:
- What are the most common value creation models used by VC firms, and how are they structured?
- How do value creation approaches differ by geography (e.g., US vs. Europe) or sector (e.g., SaaS, deep tech, biotech)?
- What are the key strengths, limitations, and trade-offs of each value creation approach?
- Are there emerging trends or innovative models shaping the future of VC value creation?
Methodology:
- Literature Review: Analyze academic and industry research on value creation in VC, including models such as network-driven platforms, operational support teams, mentorship programs, and ecosystem building; Identify patterns and gaps in existing literature.
- Categorization Framework: Develop a framework to classify value creation approaches based on their core components (e.g., operational, strategic, financial, ecosystem). Compare these approaches using dimensions such as scalability, resource intensity, and sector alignment.
- Case Studies: Examine leading VC firms (e.g., Andreessen Horowitz, Sequoia Capital, Index Ventures) to understand their specific approaches. Include both US and European examples to highlight geographical variations.
- Comparative Analysis: Assess the relative effectiveness of different models based on startup success metrics (e.g., revenue growth, funding rounds, exits).
Literature:
- Gompers, P., & Lerner, J. (2004). The venture capital cycle. MIT Press.
- Hochberg, Y. V., Ljungqvist, A., & Lu, Y. (2007). Whom you know matters: Venture capital networks and investment performance. The Journal of Finance, 62(1), 251–301.
- Maula, M. V., Autio, E., & Murray, G. C. (2005). Corporate venture capitalists and independent venture capitalists: What do they know, who do they know, and should entrepreneurs care? Venture Capital, 7(1), 3–21.
- Zider, B. (1998). How venture capital works. Harvard Business Review, 76(6), 131–139.
- Rossi, M., & Martini, E. (2019). Venture capitalists and value creation: The role of informal investors in the growth of smaller European firms. International Journal of Globalisation and Small Business, 10(3), 233–253.
- Chemmanur, T. J., Krishnan, K., & Nandy, D. K. (2011). How does venture capital financing improve efficiency in private firms? A look beneath the surface. The Review of Financial Studies, 24(12), 4037–4090.
- Spigel, B. (2017). The relational organization of entrepreneurial ecosystems. Entrepreneurship Theory and Practice, 41(1), 49–72.