Entrepreneurial Equity Financing Research: Quo Vadis? – Part II


This is Part II of the summary of “A Review and Road Map of Entrepreneurial Equity Financing Research: Venture Capital, Corporate Venture Capital, Angel Investment, Crowdfunding, and Accelerators” published in Journal of Management, Issue 43(6) (2017), pp. 1820-1853 — by Will Drover, Lowell Busenitz, Sharon Matusik, David Townsend, Aaron Anglin, and Gary Dushnitsky.

Part I is here

After the comprehensive review of over 400 studies on entrepreneurial finance, the authors of the paper make several recommendations for future research in this field. The ones that stand out are as follows:

Venture Capital

  • Going beyond the decision heuristics of individual VCs, interactions among VC investors within and across firms (e.g. social network effects and team/group dynamics) should be examined. This is a common staple of “directions for future research” sections in most academic management/strategy/entrepreneurship papers. Absent more clarity, it is akin to saying “we need to examine how people think and act, together”, which can neither be dismissed entirely nor benefited from meaningfully.
  • Power in the context of VC-to-VC power (e.g. in cross-border investments) and VC-to-ENTr power with regard to when and how use of power by investors can lead to better outcomes for both the investors and ENTrs. This is more interesting in that power is generally thought to be negatively in the ENTrial investment context. However, a mutually agreed upon power difference can create hierarchies and efficiencies. It also saves time and resources when the parties involved in an investor-ENTr relationship, or even in an investor-investor relationship, e.g. in the case of syndication, agree upon the power distribution. There are numerous power-related theories in adjacent academic literatures. Yet, only a handful have been used to examine these relationships in an entrepreneurial finance context. I think this can be a worthwhile research path.
  • Internationalization of VCs is another promising research stream in and of itself. Increasingly, most VCs need to cast broader nets to catch the next big idea that can scale globally — and fast. As they expand their reach internationally, VCs face difficulties due to geographic, cultural, and institutional distances. Entrepreneurial finance literature can learn from the international business literature (e.g. entry into foreign markets), but there are still boundary conditions and idiosyncracies that are germane to the context.

Corporate Venture Capital

The directions for future research in the CVC area that the authors point out are rather bland. The general view point is using CVC as a setting to contribute to existing research streams in strategy/management literatures such as microfoundations, boundaries of the firm, or strategic alliances and acquisitions. From a practical stand point that places entrepreneurial thinking and action at the focus, I would prefer to see research questions that seek to explain CVC outcomes. Said differently, I am more interested in future research that contributes to the CVC research stream, as opposed to using CVC as a setting to contribute to the age old strategy/management theories. For example, implications of formality and proximity (from a strategic decision making and investment perspective) of the CVC unit to the parent firm is an important topic. For a firm that considers starting or revamping a CVC unit, how closely the unit should be monitored or managed is an important issue. Should we have the CFO of the parent firm be operationally involved with the CVC? Should we get some other high level employees (CEO, CTO, CIO) to be involved too? Or, should we hire from outside (e.g. a greenfield CVC startup, funded but not managed by the parent firm)? How about a blend? What should be the KPIs (key performance indicators) for the CVC unit: portfolio growth/traction, ROI, intellectual property generation (and the extent to which it is plowed back into the parent firm), growth in legacy business(es) that can be quantitatively attributed to CVC effects? I think there are important questions that need to be answered in the CVC space.

Angel Investment

Angels are a diverse group of investors. They are also notoriously hard to study. However, the number of angels are increasing, their investment activity is growing, and their reach is expanding due, in part, to online platforms and proliferating angel network activity. Thus, finding angel investors who would be willing to participate in research studies to learn about this field might (hopefully!) become easier over time. [Having research experience in the angel investing area myself, I can attest to the frustrating difficulty in getting angels to participate in research from which they, as well as entrepreneurs and policy makers can benefit!]

The directions for future research identified for angels is similar to those for VCs: social/network approaches to angel decision making, interaction among angels regarding evaluation and due diligence stages, and whether differences between angel groups have any bearing on decisions to invest and performance outcomes. The only novel direction for future research is identified as examining the differences between virtual vs. in-person angel group operations, which leads into the next category for future research below.


Crowdfunding (CF) is an up-and-coming topic in entrepreneurial finance. The authors focus on equity CF, in which micro-investors take an equity stake in a crowdfunded venture. For example, if somebody is starting a “drones with thermal cameras attached” business [totally made up] asking for $50K of investment on an online CF platform, you can individually invest, say, $50 through CF and own 0.1% of the company. If the company grows to achieve a market cap of, say, $50M within two years, your meager share of 0.1% would be worth $5K. Not too shabby!

The most interesting aspects of CF are evaluation of projects through signals, i.e. indirect cues such as a video, graphics, text, etc. describing the venture/project, as opposed to an in-person pitch by the founder) and the significant role that social media plays in disseminating the information about a venture/project. Also, newly available technological means of research, e.g. use of eye tracking systems to identify focus points on a web site describing a venture/project, make this research setting interesting. In addition to traditional management and entrepreneurship research approaches, adjacent field such as communication/media, sociology, and psychology might help uncover unique aspects of the CF domain. Unfortunately, all of the above are generic points that could be said by anyone regarding CF. The review does not add much value in this respect.


Accelerators are “cohort-based programs that trade a configuration of mentorship, work space, and/or funding, often in exchange for equity”, that typically provide limited capital (e.g. up to around $150K) and offered at the earliest stages of a venture (p. 1822). Since accelerators are often created by universities, as well as local and state organizations that aim to promote entrepreneurial activity from a macro perspective, accelerators stand at the intersection of entrepreneurship and policy research domains. Accelerator activity is increasing, both in terms of number of ventures supported and dollars committed. The authors identify metrics of success and intra-cohort dynamics (e.g. venture-venture relationships within an accelerator) as salient research topics.

I would include mentoring, coaching, and other forms of “soft support” mechanisms that are associated with accelerators, particularly in the context of university funded accelerators. Entrepreneurship education by universities has dramatically expanded in scale and scope in the last two decades. Many universities allocate significant resources to entrepreneurship programs, accelerators/incubators, mentorship/coaching initiatives, including direct and indirect investments made to student founded ventures.

For many universities, the path to explosive growth is long and winding, making them focus on metrics such as number of ventures launched, employment created, and short-term and often media-worthy “mini wins”. We do not know if this short-sightedness in entrepreneurship education and support that is typically manifest in accelerator structures and activities is actually good or bad in the long run. Related to this question, we do not actually know all that much about the relationship between rationales for people to undertake entrepreneurship (and other people, and institutions to support entrepreneurship) with performance outcomes.

“Performance” itself is an interesting topic by itself. In this regard, it might as well be the case that certain kinds of entrepreneurial finance are harmful, instead of being helpful, to achieve certain outcomes. For example, for governments, regional administrations, municipalities etc. that compete for votes, pushing for entrepreneurial support mechanisms that create more employment at the expense of quick profitability and growth might be desirable (I am not suggesting that this is actually good. My point is, certain decision makers might desire to achieve a different kind of performance.) If the goal is world dominance in a certain product/service category and maximizing revenue/profit/tax generation, other kinds of entrepreneurial finance mechanisms might be preferred. In short, how we define “performance” (and for whom) might shed light on various relationships within intersections of entrepreneurship, finance, and policy domains.

Even though this paper does not delve into such questions, I enjoyed reading it since it provided in depth information about VC, CVC, and angel investing, while “tickling the brain” to think about emerging and growing means of entrepreneurial finance like CF and accelerators.

What is being done by organizations such as Y-Combinator remains as a whole other topic that deserves many posts of its own, however…

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