Original scientific paper

Examination of Foreign Venture Capitalists’ Role in Developing Economies

Hana Milanov

Abstract

In the United States, venture capitalists (VCs) played an important role in supporting innovative companies and establishing emerging industries. Consequently, much of the literature on VCs is characterized by a Western bias. However, faced with crowding markets in the home territory, Western VCs have joined the internationalization wave and became increasingly interested in transitional economies. This paper examines the specificities and consequent challenges of developing economies for incoming foreign venture capitalists (FVCs) through discussion of (1) number, type and stage of opportunities for investments, (2) possibilities of exiting options from the investment, and (3) the state of the legal framework pertaining to intellectual property rights, overall transparency, and
government policies in place. Upon examining the challenges, this paper concludes with the resulting differences in the role FVCs play in developing economies by suggesting that the role of FVC will first serve as a (1) selecting mechanism identifying high potential companies, (2) knowledge transfer mechanism, especially in management related issues, (3) networking mechanism, helping both host countries’ companies to internationalize and developed firms to tap into developing markets. Only once all the institutional frameworks become conducive to facilitating venture capitalist’s operations as seen in the U.S. for example, can we expect the practice of venture investing to encourage the “proper” type of
entrepreneurship, and initiate the “start up” culture we typically envision when talking about the role of VC investment in the Western context.

Keywords

venture capital; developing countries

Hrčak ID:

18517

URI

https://hrcak.srce.hr/18517

Publication date:

10.7.2005.

Article data in other languages: croatian

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