Linking Exploration and Exploitation to the Venture Capital Industry. An investigation on the rationales adopted, decision-making, and performance

Abstract

The aim of this dissertation research is to link exploration and exploitation rationale to the Venture Capital industry, understanding the measurement dimensions and the effects on both decision-making and performance of VCs. Three studies constitute the body of the empirical research in this dissertation. Each study is focused on specific structure of relationships from the research framework with a twofold aim. First, frame exploration and exploitation orientation in a novel context of investigation - the VC industry - and find evidence for the impact of a more explorative orientation (vs a more exploitative orientation) on decision-making and performance in VC companies. Second, make specific contributions to streams of strategic management and entrepreneurship literature, on the one side, and practice, on the other side. In the first study we conceptualize exploration and exploitation orientation in the VC context, framing exploration and exploitation in terms of greater versus narrower search for knowledge resources in non-local domains. The second study applies the measurement instrument proposed in the first study to test to what extent exploration and exploitation orientation impact on decision-making performance. The third study explores the impact of exploration orientation on VC performance under high levels of uncertainty. A quantitative approach is adopted to conduct the empirical investigation. To empirically test the hypotheses of the first two studies we managed a survey sent to 90 Canadian venture capitalists. Data collected have been analyzed through a multivariate methodology. Furthermore, to empirically test for hypotheses developed in the third study we collected data from the Thomson One Banker Database and ran the analysis on a dataset consisting of over 1.400 VC investments. Results have been presented and discussed. Implications are derived for both theory and practice. Limitations of the study and future research are outlined.