Venture capital investment strategy in emerging markets: A resource approach

Abstract

In this study, we apply resource theory and knowledge-based theory to analyze the competitive advantage of VC firms in emerging markets and explore how VC firms accumulate their knowledge and build networks through their investment strategies in such markets. We summarize four mechanisms of knowledge accumulation, and highlight the foreign and local VC firm's differences in VC investment decision process and syndication strategy. In VC investment decision process, foreign VC firms are found to obtain more solicited deals and less unsolicited deals from networks compared to local firms, and foreign VC firms put less emphasis on the managerial experience compared to local firms. In VC syndication process, foreign VC firms more likely join syndication for deal reciprocity and acquiring local knowledge compared to local ones. This study has shown that VC knowledge affects its usage of learning mechanisms and together they affect VC investment strategies in emerging markets.