too. Having this on mind, the result should be higher future returns for the investor and, of course, enhanced performance for the venture capital backed company. Consequently, when the role of the venture capital in financing small businesses is discussed, it can be inferred that it is multiple. Therefore, more attention to the latter is devoted in the following sections.
3 Why invest in promising business? – Venture capitalist perspective
It is vast agreed and practically proven that venture capitalists invest only in promising projects. At the very beginning, investors are deeply sceptical, bad mood reasoning with more answers “no”, rather than “yes” (Mason and Rogers, 1997; cited in Mason and Harrison, 2004). Furthermore, venture capitalists screen potential investments in regards to the collecting information about business, its market approach, management team or entrepreneur (Berger and Udel, 1998; cited in Baeyens and Manigart, 2003), all in order to reduce the initial information asymmetry and potential problems with entrepreneurs. In other words, before final contracting, venture capitalist spends much of his time and efforts in assessing and observing the opportunity, in terms of its market size, strategies, customer adoption etc. (Kaplan and Strömberg, 2001b). This, in turn, should eliminate the possibility to access a non-quality project (adverse selection problem) and “... [should] ensure that the funds will not be diverted to fund an alternative project (moral hazard problem)” (Berger and Udell, 2002, p.32). In this phase of initial scanning, investor should be convinced that his money will not simply “evaporate”. Instead of that, it should make future value for him.
学籍管理系统的需求分析 Pre-screening phase, accordingly, enables platform for contracting on a sustainable basis. This means that the investment will surely bear fruit later. Thus, venture capitalists provide the capital and begin with creating new value, which they can extract benefits for themselves from. Consequently, the role of the venture capitalist is dual: careful selection of promising firms or projects and than close observation over time (Kaplan and Strömberg, 2001a; cited in Hellmann and Puri, 2002a). The latter constitutes the next phase of the process of venture capital financing accompanied with creating new value.
4 Venture capital – “rich services package” and innovation stimulator
Even though the main role of venture capital is feeding small, innovative and fast growing firms with fresh capital, many articles (Giudici and Paleari, 2000; Kortum and Lerner, 2000; Bottazzi and Rin, 2002; Hellmann and Puri, 2002a; Sætre, 2003; Wilson, 2005) suggest that venture capital backed firms receive many other services from venture capitalist which are as much important for the entrepreneur, as the very capital infused is.
In their article, Giudici and Paleari (2000) argue that as the capital is introduced in the firm, venture capitalist gains power to dynamically impinge on the management
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