Another hybrid? Family businesses as venture capitalists

Abstract

Purpose

This paper addresses the phenomenon of venture capital firms which are also family businesses (VCFBs). The purpose of this paper is to explore and understand the phenomenon of VCFB by answering the following questions: What are the features of professionalization in VCFBs? And, how do professionalization and types of family businesses explain the strategies and governance of VCFBs?

Design/methodology/approach

As an explorative case study, it maps the Swedish venture capital (VC) industry and compares two VCFBs and their business investments with regard to strategy and governance.

Findings

By suggesting two major configurations, the study explains how family business development and levels of professionalization relate to differences in VCFBs’ strategies, which in turn, affect their governance. The personal VCFB features active owners who personally take responsibility roles and strongly focus on customers and relationships. The administrative VCFB strongly focuses on predetermined financial metrics, high ethical awareness among board members, and ongoing interplay between the active family board members and minority shareholders.

Research limitations/implications

The study was conducted in Sweden and concerns Swedish VCFBs. The paper contributes to the literature by combining the two currently separate research streams, i.e. family business and VC, highlighting the importance and consequences of family ownership in VC businesses.

Practical implications

The present study provides stock market investors and stock analysts with a deeper understanding of VCFBs’ strategy incentives. By identifying the kind of VCFB and its relation to strategy, more reasonable assessments and analyses of the VCFBs’ actions will be possible. Family firms willing to accept VC-finance should consider the type of VC and the potential consequences of family ownership.

Originality/value

This study is the first to classify VC firms as family businesses. Moreover, it shows the features of professionalization in VCFBs by suggesting a set of configurations.

Citation

Ljungkvist, T. and Boers, B. (2017), "Another hybrid? Family businesses as venture capitalists", Journal of Family Business Management, Vol. 7 No. 3, pp. 329-350. https://doi.org/10.1108/JFBM-02-2017-0006