Effect of venture capital investment horizon on new product development: Evidence from the medical device sector

IF 7.7 1区管理学 Q1 BUSINESS

Journal of Business Venturing Pub Date : 2024-10-30 DOI:10.1016/j.jbusvent.2024.106454

Moonsik Shin , Joonhyung Bae , Umit Ozmel

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引用次数: 0

Abstract

Drawing on entrepreneurial financing literature, we investigate how venture capital (VC) firms' investment horizons affect their ventures' product quality problems. We argue that when a VC firm has a short investment horizon, it may guide its portfolio companies to develop new products fast to increase the likelihood of successful exits. However, this deliberate effort may act as a double-edged sword for ventures. That is, VC firms' guidance on product commercialization could inadvertently expose ventures to product quality problems. Building on this notion, we suggest that ventures backed by VC firms with short investment horizons may experience more product quality problems than those backed by VC firms with long investment horizons. We further suggest that the effect of a VC firm's investment horizon on product quality problems is mitigated when the venture is invested by corporate VC investors but amplified when the venture develops complex products. We test our hypotheses using a dataset on product recalls of VC-backed ventures in the U.S. medical device industry.

Executive summary

The success and survival of new ventures largely depend on their ability to develop and commercialize innovative products. Due to their limited resources, these ventures often seek support from venture capital (VC) investors. However, the involvement of VC investors can be a double-edged sword, as their focus on timely (or even accelerated) product introduction may lead to unforeseen problems. This occurs because VC firms may adopt different approaches to supporting ventures in new product development, depending on their investment horizons, which are constrained by their contractual obligations to their limited partners (LPs). Specifically, VC firms with long investment horizons may allow their portfolio companies to have sufficient time to develop new products. In contrast, VC firms with short investment horizons may be under time pressure and guide their portfolio companies to speed up the product development process to increase the chances of ventures' exits within a limited timeline.

Building on this notion, we examine how the investment horizons of VC investors impact ventures' product quality problems. Ventures invested by VC firms with short investment horizons may face pressure to accelerate the new product development process, preventing the ventures from engaging in time-intensive learning processes necessary for cultivating new technological and market knowledge. Therefore, we propose that ventures invested by VC firms with short investment horizons may experience more product quality problems than those invested by VC firms with long investment horizons. We further propose two boundary conditions to validate our theoretical mechanisms. First, we suggest that the negative effect of VC investors' time horizons on product quality problems is mitigated by the presence of corporate VC (CVC) firms in the investment syndicate. As CVC firms have long investment horizons and pursue strategic goals, they can counterbalance the influence of VC firms with short investment horizons on ventures' product development process. Second, we suggest that the complexity of the products developed by ventures amplifies the impact of VC firms' investment horizons on product quality problems. This is because complex products require more time for intensive learning and information processing, making ventures particularly susceptible to product quality problems when under time pressure.

To test these arguments, we use the data on product recalls of VC-backed ventures in the U.S. medical device industry. We also incorporate insights from interviews with venture capitalists and entrepreneurs to validate our arguments. This study enhances our understanding of how partner-specific characteristics (VC firms' investment horizons in our context) affect private ventures' development paths and outcomes. By highlighting the tradeoffs associated with VC funding, we provide a more balanced perspective to the literature on VC investments, which has predominantly emphasized the benefits of VC investment. Our arguments and findings suggest that the time pressure faced by VC investors can be transferred to ventures, potentially resulting in unexpected product quality problems.

查看原文本刊更多论文

风险资本投资期限对新产品开发的影响：医疗器械行业的证据

借鉴创业融资文献，我们研究了风险投资（VC）公司的投资期限如何影响其风险企业的产品质量问题。我们认为，当风险投资公司的投资期限较短时，它可能会引导其投资组合公司快速开发新产品，以增加成功退出的可能性。然而，这种刻意的努力对风险企业来说可能是一把双刃剑。也就是说，风险投资公司对产品商业化的指导可能会无意中使风险企业面临产品质量问题。基于这一观点，我们认为，由投资期限短的风险投资公司支持的风险企业可能会比由投资期限长的风险投资公司支持的企业遇到更多的产品质量问题。我们还认为，当风险企业由企业风险投资者投资时，风险投资公司的投资期限对产品质量问题的影响会减弱，但当风险企业开发复杂产品时，这种影响就会扩大。我们使用美国医疗器械行业风险投资支持的风险企业的产品召回数据集来验证我们的假设。执行摘要新风险企业的成功和生存在很大程度上取决于其开发创新产品并将其商业化的能力。由于资源有限，这些企业通常会寻求风险资本（VC）投资者的支持。然而，风险投资人的参与可能是一把双刃剑，因为他们对及时（甚至加速）推出产品的关注可能会导致不可预见的问题。出现这种情况的原因是，风险投资公司在支持风险企业开发新产品时可能会采取不同的方法，这取决于它们的投资期限，而投资期限又受到它们对有限合伙人（LP）的合同义务的限制。具体来说，投资期限长的风险投资公司可能会让其投资组合公司有足够的时间开发新产品。与此相反，投资期限短的风险投资公司可能会迫于时间压力，引导被投资公司加快产品开发进程，以增加风险企业在有限时间内退出的机会。基于这一理念，我们研究了风险投资人的投资期限如何影响风险企业的产品质量问题。投资期限较短的风险投资公司所投资的风险企业可能会面临加快新产品开发进程的压力，从而使风险企业无法参与培育新技术和市场知识所必需的时间密集型学习过程。因此，我们提出，与投资期限长的风险投资公司相比，投资期限短的风险投资公司所投资的企业可能会遇到更多的产品质量问题。我们进一步提出了两个边界条件来验证我们的理论机制。首先，我们认为风险投资人的时间跨度对产品质量问题的负面影响会因为投资银团中存在企业风险投资公司（CVC）而得到缓解。由于 CVC 公司具有较长的投资期限并追求战略目标，它们可以抵消投资期限较短的风险投资公司对风险企业产品开发过程的影响。其次，我们认为风险企业所开发产品的复杂性会放大风险投资公司投资期限对产品质量问题的影响。这是因为复杂的产品需要更多的时间进行深入学习和信息处理，使得风险企业在时间压力下特别容易出现产品质量问题。为了验证这些论点，我们使用了美国医疗器械行业风险投资支持的风险企业的产品召回数据。为了验证这些论点，我们使用了美国医疗器械行业风险投资支持企业的产品召回数据，并结合与风险投资家和企业家的访谈来验证我们的论点。这项研究加深了我们对合作伙伴特定特征（在我们的研究中为风险投资公司的投资期限）如何影响私营企业的发展路径和结果的理解。通过强调与风险投资相关的权衡，我们为有关风险投资的文献提供了一个更加平衡的视角，而这些文献主要强调的是风险投资的好处。我们的论点和研究结果表明，风险投资人面临的时间压力可能会转移到风险企业身上，从而可能导致意想不到的产品质量问题。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Journal of Business Venturing BUSINESS-

CiteScore

16.70

自引率

6.90%

发文量

审稿时长

77 days

期刊介绍： The Journal of Business Venturing: Entrepreneurship, Entrepreneurial Finance, Innovation and Regional Development serves as a scholarly platform for the exchange of valuable insights, theories, narratives, and interpretations related to entrepreneurship and its implications. With a focus on enriching the understanding of entrepreneurship in its various manifestations, the journal seeks to publish papers that (1) draw from the experiences of entrepreneurs, innovators, and their ecosystem; and (2) tackle issues relevant to scholars, educators, facilitators, and practitioners involved in entrepreneurship. Embracing diversity in approach, methodology, and disciplinary perspective, the journal encourages contributions that contribute to the advancement of knowledge in entrepreneurship and its associated domains.