Role of Non-Monetary Services of Venture Capitalists on Entrepreneurial firm Performance

Abstract

Venture Capital (VC) has gained attention in recent years specifically in Indian context. VC is risk equity investment by professional investors who are actively involved in providing non-monetary services through representation on board of directors. This study endeavored to explore the relationship between non-monetary services by Venture Capitalists (VCs) and entrepreneurial firm performance. Most of the literature on role of non-monetary services is in context of developed countries. The non-monetary role of VCs in developing countries is more relevant due to the institutional voids faced by such countries. A comprehensive framework of non-monetary services including monitoring, advising on recruitment, advising on strategic management, business networking, and social networking is being proposed in this study. The model is extended to include the moderating role of frequency of board meeting, growth stage of firm, and entrepreneurs’ prior business formation experience. A structured questionnaire was administered to evaluate the impact of role of non-monetary services on entrepreneurial firm performance. The quantitative survey was complemented by qualitative survey to substantiate the results. For qualitative survey, four entrepreneurs were approached and multiple rounds of semi-structured interviews were conducted to generate responses. The findings described a positive relationship relation between non-monetary services and entrepreneurial firm performance. The frequency of board meeting moderates the effect of monitoring, advising on strategic management, business networking, and social networking. The growth stage of firm moderates the effect of business networking on entrepreneurial firm performance. The entrepreneurs’ prior business formation experience moderates the effect of business networking on entrepreneurial firm performance. The results emphasized the importance of non-monetary services of VCs for entrepreneurial firm performance.