E-Book, Englisch, 114 Seiten, EPUB
Hilb / Grollé / Hess Governance of Ventures
1. Auflage 2020
ISBN: 978-3-258-48165-4
Verlag: Haupt Verlag
Format: EPUB
Kopierschutz: 6 - ePub Watermark
The Role of Venture Boards, Entrepreneurs and Investors in Entrepreneurial Value Creation
E-Book, Englisch, 114 Seiten, EPUB
ISBN: 978-3-258-48165-4
Verlag: Haupt Verlag
Format: EPUB
Kopierschutz: 6 - ePub Watermark
In times of disruption, venturing becomes a key source of value creation. As new opportunities emerge and existing models fade, entrepreneurs, corporates and investors are eager to explore and exploit those opportunities. Venture governance, i. e. defining, implementing and following a fit-for-purpose model to provide direction and control in the best interest of all stakeholders, plays a crucial role in enabling and ensuring entrepreneurial value creation.
This book presents twelve perspectives on the governance of ventures, bringing together viewpoints from both practitioners and academics. It provides practical insights, introduces new perspectives and invites the reader – whether a member of a venture board, an entrepreneur or an investor – to reflect on their own approaches to venture governance.
Autoren/Hrsg.
Weitere Infos & Material
1 The Renaissance of Venturing [12] In today’s era of disruption, when everything seems to be new, it is instructive to look back at history. Every period of disruption has been characterized by concurrent developments. Schumpeter (1942) neatly summarized this process as “creative destruction.” Accepted norms of economic value creation are challenged by new, more effective and more efficient approaches. This eventually leads to the destruction of old companies and the formation of new ventures. Creative destruction follows a structured path that has implications for the perception of venturing. In the initial phase, few pioneers actually envision the new, and they are usually ignored or ridiculed by the establishment. But, as these pioneers start to prove themselves and find their fellowship with clients and customers, elements of the establishment slowly awaken. They either begin to embrace or fight off the change, as neatly described by Rogers (1962) in his analysis of the diffusion of innovation. Disruptive innovation eventually prevails, leading to true value innovation and rendering an existing solution obsolete, as postulated by Bower and Christensen (1995). Venturing is nothing new. It has always existed at the core of creative destruction. 2 The Venture Board – the Glue that Bonds the Venture Ecosystem For ventures to flourish, they need to be embedded into a venture ecosystem that provides the key ingredients for success, and allows for an efficient and effective allocation of those resources and capabilities. If we view venturing as a series of interactions between the key players at various stage of a venture, as suggested by Dinnar and Susskind (2019), we can distinguish three key players with distinctive roles, functions and motivations: – Entrepreneurs: The founders turn opportunities into business value. Entrepreneurialism provides the capabilities to realize ideas and capitalize from value creation by selling or living from the companies they create. – Investors: Investors provide the much-needed capital to scale the business. They expect a risk-adjusted return from their investments. They also serve as validators, as they choose between different options in which to invest. – [13] Venture Boards: One of the key functions of the venture board is to align the interests of entrepreneurs and investors, with the company’s success as the primary objective. They provide co-direction and control and expect to be remunerated for their services. Exhibit 1: Venture ecosystem (Hilb 2019, ventureecosystem.com) Historically, most of the focus has been on entrepreneurs and, to a lesser extent, investors. Venture boards have only gained attention more recently. The two catalysts have been well-known cases of failure in venture governance (Garg and Furr 2017) and a greater level of research at the intersection of corporate governance and entrepreneurship. The roots of this research can be traced back to Mace (1948), a Harvard professor, who stressed that the venture board can be a valuable resource of advice beyond acting as a supervisor (Gabrielsson 2017). The pivotal role of venture boards, however, is becoming better understood, as summarized by Garg and Furr (2017, 327): “Although the exact role of the board may vary across ventures and institutional contexts, venture boards are typically central to the most significant actions within ventures.” The venture board plays a pivotal role by connecting investors with entrepreneurs – and holding together the venture ecosystem. 3 The Four Waves of Venture Governance [14] While the key players in the venture ecosystem have remained the same, the institutional context has evolved over time. As outlined above, ventures have always been the driver of economic progress, from hunting ventures in the Ice Age to pillaging ventures by the Vikings. In history, the alignment of interests was ensured by ad-hoc governance arrangements, i.e. for each mission, specific rules were defined and enforced. The start of the second wave, the special purpose venture governance, can be attributed to the Medici in the 15th century who popularized double bookkeeping to finance the first trade missions. Given the scope of these global quests and the risks associated, investors were sought to pre-finance the missions. The investors were guaranteed a pre-defined return upon the successful completion of a mission. The process was perfected in the 17th century by the establishment of the British and Dutch East Indies Companies. These entities set the foundations for the limited liability organization and facilitated much of the innovation that would follow. The early stages of industrialization were mainly driven by formalized adhoc ventures, such as the construction of railways and critical infrastructure. This era gave birth to large industrial firms whose focus on innovation was guided by general-purpose venture governance, i.e. companies started ventures within their corporations without needing to find investors for each single venture. Passed by the British parliament in 1844, the Joint Stock Companies Act enabled companies to incorporate for the first time without a Royal Charter. Enshrined in 1855, the Limited Liability Act was also instrumental in the rise of general-purpose ventures (Bevir 2012). In that age, corporates, and to a lesser extent merchant bankers, became the venture capitalists. The emergence of a formal venture capitalist industry, pioneered by Doriot, “the father of venture capitalism,” in 1946 (Spencer 2008) marked the dawn of the fourth wave, the specialized venture governance. In that model, investors that identified and co-developed ventures became driving forces of value creation through ventures. The megatrends of financialization and specialization in asset management boosted the popularization of this governance model. Before long, corporates accustomed to applying the general venture governance model shifted their focus to the specialized venture governance model. Exhibit 2: [15] Governance waves (Hilb 2019, governancewaves.com) Venture governance evolved from early ad-hoc approaches to the fourth wave, the specialized venture governance age. 4 The Changing Role of Venturing in the Business Lifecycle The birth of the modern business organization, both as an institutional outcome and a driver of venturing, was a historic economic breakthrough. The modern business organization, however, assumes many forms. Taking into account the heterogeneity of an organization, we may focus on the business lifecycle, which helps us to better understand the different levels of relevance of venturing. As such, we can define four phases of a company lifecycle: – Formation phase: The initial phase of a company is characterized by opportunity seeking. Creativity is a key capability to help the company develop a viable product and requires capital injections. – Acceleration phase: Fast growth, entering new markets and capturing market share define the acceleration phase. The company needs to invest in market development to ensure it reaches consumers and clients before potential competitors. As companies at this stage often lose money, they are still owned by private investors. – Consolidation phase: Once an organization is established and operates in a well-defined industry, the focus shifts to increasing efficiency and effectiveness to preserve its position. The same optimization focus is applied to the capital structure. – [16] Energization phase: As industries evolve, every business reaches the point where it needs to re-invent itself to ensure the industry-solution fit. It needs to re-discover opportunities by forgetting and learning, which requires preservation and re-creation of capital. Exhibit 3: FACE lifecycle (Hilb 2014, facelifecycle.com) Venturing can be seen as one of three dominant paradigms for organizing a business, as defined by Hilb and Casas (2015). In contrast to managing and administrating, venturing focuses on creating absolute value beyond existing industry boundaries, while management revolves around protecting absolute value by creating relative value, i.e. gaining market share. The administrative paradigm, on the other hand, concentrates on protecting relative value, which equals absolute value due to a lack of competition. Hence, venturing can occur in all lifecycle stages, although its relevance, scope and scale may differ – as will the requirements for effective governance: – Formation phase: Almost all company activities in the formation phase center around venturing, i.e. creating value by identifying and capturing new opportunities. This phase defines the culture as well as the capabilities needed to succeed. In this context, the main objective of effective governance is to ensure survival by facilitating entrepreneurial freedom while maintaining compliance with relevant legal requirements. – Acceleration phase: While venturing is still a dominant paradigm in the acceleration phase, the managerial paradigm gains extra relevance, i.e. how to create value within pre-defined...
