The World Scientific Reference on Entrepreneurship

The following sections are included:

• Contents
• About the Editor-in-Chief
• About the Editor
• About the Contributors

Interest in promoting entrepreneurship has become a worldwide phenomenon. Yet, empirical evidence suggests that countries vary significantly in their ability to incubate and create new firms. Sources of these differences across countries are not well understood. In this paper, we examine the cross-country heterogeneity of new venture formation rates by testing two core propositions derived from the Schumpeterian and institutional economic views of entrepreneurship. The Schumpeterian view posits that nations that offer greater technological opportunities for entrepreneurs to exploit are likely to have higher rates of new venture formation. Following the institutional economics perspective, nations with facilitating formal institutions can provide a better incentive structure for entrepreneurs to create new businesses. Our empirical analysis of new venture formation rates for 84 nations during 1996–2005 shows that technological opportunities and formal institutional development contribute substantially to the heterogeneity of new venture formation rates across nations, supporting both theoretical perspectives.

In this study, we investigate the impact of entrepreneurial pitches and interactions between entrepreneurs and business angels (BAs) on investment outcomes. Instead of an experimental- or survey-based research sample, we use actual pitches to observe the delivery (preparedness, and passion) and content of the pitch and interaction (information on the product/service, market, and entrepreneur). We found that while preparedness has a significant positive influence on angel investing, passion does not. Furthermore, our empirical results show that the degree to which the pitch and interaction convey favorable information about the entrepreneur is positively related to angel investment decisions. Positive content about product characteristics and market attractiveness do not have a significant effect.

Angel finance forms an integral part of the larger venture capital industry as it often serves as the primary source of external equity for high-risk, early stage startups. The term business angel characterizes a high net-worth individual, often with an entrepreneurial background, who invests in small, private firms on his own account. Angel finance plays a major role in the high-technology industries. In fact, it is hard to single out large high-tech corporations that, at the crucial growth stage as a startup company, did not receive funding from such business angels. Apple, Amazon, Facebook, and Google are only a few examples of the large spectrum of today’s technology giants that — without the contribution of business angels in their early growth stage — ultimately may have never emerged.

This chapter sheds light on the characteristics of business angels and their approach to screening, selection, and exhibiting control. It illustrates how angel finance is fundamentally embedded in the larger venture capital industry. To this end, relationships and networks not just among business angels but also between angel and more formal venture capital investors are explored.

The market for small-firm financing is evolving rapidly. Angel investors are no longer as locally focused, and the legal apparatus and regulatory environment struggle to adapt to technological change. Women represent an increasing proportion of angel investors, and we see no reason for that trend to stop over the next several years. The size and structure of angel investments are changing as new forms of small-firm finance evolve.

Serious research on angel investors and their investments has been hampered by inconsistent definitions of angel investors, and poor data. Angel data sets are almost always built using surveys, with well-known potential for bias. The lack of transactions data is particularly limiting, making return calculations difficult. This will change as machine-readable sources become available. For now, though, we contend that we really do not know very much about the returns on angel investments. We do know, though, that continued change in the angel landscape is inevitable.

This chapter discusses issues pertaining to crowdfunding and entrepreneurial internationalization. We extend prior literature by examining case studies and portals where entrepreneurial internationalization is facilitated by crowdfunding. We discuss opportunities, challenges, and future research opportunities.

Venture capital (VC) investments have underperformed the S&P 500 Index by about 5% since 2000. This paper examines whether venture capitalists’ investment styles have changed over time and whether these changes can explain the underperformance of VC investments in the recent decade using a sample of US VC investments between 1990 and 2011. The following patterns emerge from the empirical analysis. Firstly, VC firms participated in fewer rounds per venture in the more recent decade. Secondly, VCs increasingly funded technology firms. Thirdly, VC-backed firms were more likely to exit via mergers and acquisitions than IPOs in the recent decade. These findings provide important insights on the relatively poor performance of VC investments in the recent decade.

Corporate venture capital (CVC) is one of the relatively under-explored areas in venture capital. Although the origin of CVC can be traced back to the early 1960s, more systematic examination of CVC activity did not commence until the late 1990s. In this chapter, I summarize the existing empirical evidence on CVC. I show that CVC contributes to the prosperity of parent corporations as well as the development of startup firms. I also provide some directions for future CVC research.

Academic research recognizes that the organizational structure of banks could have implications for the financing of small businesses and entrepreneurial firms. In this chapter, we start by reviewing the underlying theoretical motivation and then summarize existing evidence. Overall, it is confirmed that the organization of lending institutions is important for the use and transmission of information, as well as credit availability for small businesses. Moreover, using a unique dataset of bank loans, we empirically document that loan contract characteristics such as interest rates and collateral requirements are sensitive to the hierarchical allocation of decision-making authority within the bank’s organization.

In this chapter, we ask whether public equity markets as originally conceived and as shaped by important securities market regulations beginning the 1930s continue to be an important driver of economic growth. Much of the current structure originated in that earlier era and was motivated by the objectives of leveling the playing field and maintaining or restoring confidence in markets at a time when individual investors owned a large fraction of total market value. Though there have been significant changes to the regulatory framework since then, the regulations are largely still directed at the original objectives. Key empirical regularities calling these aims into question include the more than 10-fold rise of institutional ownership of public shares, significant declines in the numbers of both IPOs and publicly listed firms in the past 15–20 years, and the dramatic increase in financing via alternative, less regulated means. Moreover, it is not clear that small investors reap benefits from rules meant to protect them. Hence we question if potentially costly regulation provides commensurate benefits, or even is necessary for economic growth.

Innovation is vital for the growth and success of modern business. This survey summarizes the recent theoretical and empirical development in corporate innovation, and reviews how venture capital (VC), corporate governance, CEO characteristics, financial intermediation, and laws impact innovation.

The private equity sector in China has become an important force in the country’s industrial transformation, becoming the second largest global venture capital (VC) market next to the US. Foreign private equity funds have played an important role in the development of China’s private equity market through the transfer of mature human capital and institutional infrastructure. This chapter provides a history and discusses institutional and regulatory features of the Chinese private equity and initial public offering (IPO) market and examines the impact of foreign private equity funds on venture success and the internationalization of Chinese entrepreneurial firms.

This chapter presents the unique aspects of the macro-level environment and individual-level attributes of entrepreneurs in emerging economies. Political and economic risks are inherently higher in emerging countries; coupled with high corruption, often partially literate and unprofessionally-trained owners, admittedly, financing of entrepreneurial ventures can be daunting. However, it can be highly profitable too, provided investors understand the risks well enough to adapt existing methods. The objective of this chapter is to shed some light on the challenges and opportunities in less-developed environments from the perspective of a private equity (PE) or venture capital (VC) fund manager. The broad success strategy is to embrace and leverage the cyclical volatility of emerging economies with dynamic, flexible micro-strategies suggested within the chapter. Policy measures that can be adopted by transnational development agencies and local governments in fostering economic development through public–private partnerships in entrepreneurial activities are also suggested.

The following sections is included:

• Name and Subject Index