Albert V. Bruno

Identifying and using critical success factors

Abstract This article focuses on defining and discussing the concept of critical success factors as input into the environment analysis, resource analysis, and strategy evaluation steps in the strategic planning/strategy development process. The reader is provided with eight possible sources of critical success factors including environmental analysis, analysis of industry structure, industry/business experts, analysis of competition, analysis of dominant firm in the industry, company assessment, temporal/intuitive factors and PIMS results. Examples of CSFs from various sources are provided and a scheme by which the reader can assess the relative importance of identified CSFs is presented.

Success Among High-Technology Firms

Examines the development patterns for new, high-technology firms and determines factors that relate to the success or failure of these firms. Specifically considered are the extent to which these firms discontinue, become acquired, or achieve unusual sales growth and the founder characteristics (identifiable at time of startup) that relate to the companys success or failure. Prior studies finding high rates of firm discontinuance have not focused on high-tech manufacturers. Data were gathered in 1969 through published sources, and interviews with founders and industry experts, for 250 high-technology firms founded in the San Francisco Peninsula during the 1960s. Follow-up studies--using questionnaires, interviews, and data from the California Secretary of State--were conducted in 1973 and 1976. Findings indicate that the number of discontinued firms rose from 4.8% in 1969 to 24.4% in 1973 and 29.2% in 1976. This rate of discontinuace was lower than that found for non-technical firms in other studies. The level of growth was also higher. The rate of acquisition or merger of the firms was high: 19.6% by 1969, 22.8% by 1973, and 23.3% by 1976. Since both successful and unsuccessful new firms were acquired, this may be a partial explanation of the lower discontinuance rate. Even successful firms underwent frequent changes - of management, ownership, name of firm, product lines. Overall, the 73 firms that had discontinued by 1976 were identified as unsuccessful, and 31 (or 12.4%) were defined as successful in that they had achieved annual sales of more than

The CEO, venture capitalists, and the board

5 million - typically achieved by only 5% of American manufacturing firms. Finally, in this study, it was found that high growth firms were more likely to have been started by groups of individuals who came from large corporations and whose new firms used similar technologies and served similar markets as these corporations. (SFL)

The entrepreneur's search for capital

Abstract An element in the never-ending debate about the process of funding highpotential businesses is the extent to which venture capitalists add value besides money to their portfolio companies. At one end of the spectrum, venture capitalists incubate start-ups and nurture hatchlings, while at the other extreme, so-called “vulture” capitalists feed on fledgling companies. A very important way in which venture capitalists add value other than money to their portfolio companies is by serving on boards of directors. Hence, by studying the role of outside directors, especially those representing venture capital firms, we were able to shed light on the issue of value-added. In the first phase of the research, we studied 162 venture-capital-backed high-tech firms located in California, Massachusetts, and Texas. In the second phase (with data from 98 of the 162 firms), the lead venture capitalists on the boards were classified according to whether or not they were a “top-20” firm. Board Size The average board size was 5.6 members, which was somewhat less than half the size of the board of a typical large company. Board size increased from 3 to 4.8 members with the first investment of venture capital. Board Composition and Control The typical board comprised 1.7 inside members, 2.3 venture capital principals, .3 venture capital staff, and 1.3 other outsiders. Insiders constituted 40% or less of the members of 82% of the boards, while venture capitalists made up over 40% of members of 55% of the boards. When a top-20 venture capital firm was the lead investor, then 55% of the board members were venture capitalists; in contrast, when the lead was not a top-20 firm, only 23% of board were venture capitalists. Value-Added Overall, our sample of CEOs did not rate the value of the advice of venture capitalists any higher than that of other board members. However, those CEOs with a top20 venture capital firm as the lead investor, on average, did rate the value of the advice from their venture capital board members significantly higher—but not outstandingly higher—than the advice from other outside board members. On the other hand, CEOs with no top-20 as the lead investor found no significant difference between the value of the advice from venture capitalists and other outside board members. Hence, in our sample, we could not say that there was a noticeable difference in the value of valueadded by top-20 boards and non-top-20 boards. The areas where CEOs rated outside board members (both venture capitalists and others) most helpful were as a sounding board, interfacing with the investor group, monitoring operating performance, monitoring financial performance, recruiting/replacing the CEO, and assistance with short term crisis. That help was rated higher for early-stage than later-stage companies. Our findings have the following implications for venture capitalists, entrepreneurs, and researchers. Venture Capitalist The main product of a venture capital firm is money, which is a commodity. Its impossible to differentiate a commodity in a martetplace where the customers have perfect information. As venture capitalists learned since the mid-1980s, their customers (entrepreneurs) now have an abundance of information that, while it may not be perfect, is certainly good enough to make a well-informed decision when selecting a venture capital firm. Hence, value-added may be the most important distinctive competence with which a venture capital firm—especially one specializing in early-stage investments—can differentiate itself from its competitors. If that is the case, then venture capital firms need to pay more attention to their value-added, because CEOs, overall, do not perceive that it has a great deal of value to their companies. The top-20 appear to be doing a somewhat better job in that area than other venture capital firms. Entrepreneurs If an entrepreneur wants outside board members who bring valueadded other than money, it appears that they can do as well with non-venture capitalists as with venture capitalists. The entrepreneurs we talked to in our survey gave the impression that board members with significant operating experience are more valued than “pure” financial types with no operating experience. If venture capital is an entrepreneurs only source offunding, then the entrepreneur should seek out firms that put venture capitalists with operating experience on boards. It also appears that an entrepreneur, will, on average, get more value-added when the lead investor is a top-20 firm, but there is a drawback: when a top-20 is the lead investor, it is more likely that venture capitalists will control the board. No entrepreneur should seek venture capital solely to get value-added from a venture capitalist on the board, because outside board members who are not venture capitalists give advice that is every bit as good as that given by venture capitalists. Researchers Value-added is a fruitful avenue of research. From a practical perspective, if valueadded exists it should be measurable. So far the jury has not decided that issue. Some finance studies of the performance of venture-capital-backed initial public offerings (IPOs) claim to have found valueadded, some claim to have found none, and at least one study claims to have found negative value- added. From a theoretical perspective, value-added is relevant to agency theory, transaction cost economics, and the capital asset pricing model. It also is relevant to strategic analysis from the viewpoint of distinctive competencies.

Why firms fail

Abstract The popular media have been inundated with stories of the spectacular success of start-up companies whose very existence, let alone their meteoric growth, would not have been possible without the infusion of venture capital. By comparison, there is a dearth of scientific research on the topic of venture capital. In this article we take a systematic look at entrepreneurs in search of risk capital. This inquiry is based upon five data bases including surveys of venture capitalists and entrepreneurs. We have tracked 193 ventures which were denied venture capital, surveyed 179 new high-technology companies in Northern California, and reviewed the Dun & Bradstreet credit reports of 145 new ventures in California in SIC codes related to the high tech sector with follow-up interviews of 86 of these 145 start-ups.

Causes of new venture failure: 1960s vs. 1980s

Abstract “To avoid all mistakes in the conduct of a great enterprise is beyond mans powers,” said Minicius to his soldiers after his defeat by Hannibal in 209 B.C. “But,” he continued, “when a mistake has once been made, to use his reverses as lessons for the future is the part of a brave and sensible man.” Founders of some high-technology firms in Californias Silicon Valley were asked the reasons that their companies failed. Their answers can help others avoid their fate.

Venture capital: Investor and investee perspectives☆

Abstract Reasons for business failure are not as well documented as reasons for business success. Yet they are at least as important, and this study shows that they have not changed much in 20 years.

Patterns of development and acquisitions for silicon valley startups

Abstract The venture capitalist plays a crucial role in, the startup and growth phases of entrepreneurial firms. Yet, the burgeoning but still relatively modest venture capital research literature continues to be characterized by isolated studies of how venture capitalists raise capital and select investments; little effort has been made to consolidate and integrate these findings. In particular, little is known about the impact of the venture capitalists decision upon the entrepreneurial process. This paper has two objectives: The first is to review the available material and literature on venture capital decision-making and its impact on entrepreneurship. The second objective is to elucidate a research methodology which involves three different units of analysis as they relate to venture capital decision-making: the venture capitalist, the deal which was funded, and the proposal which was denied. Results from these three inter-related studies by the authors are reported.

Toward Understanding Attitude Structure: A Study of the Complimentarity of Multi-Attribute Attitude Models

Abstract The patterns of development of 250 high-technology firms, are examined. As of 1980, 36.8% of these firms had discontinued, 30.8% were surviving and independent, and a remarkably high 32.4% had been acquired. The characteristics of both the acquired and acquiring firms are examined and reveal distinctive patterns of acquisition.

SCALING SOCIAL VENTURES AN EXPLORATORY STUDY OF SOCIAL INCUBATORS AND ACCELERATORS

This article provides an alternative to the traditional method of selecting one model as representative of the entire population. The authors contend that this procedure extends the usefulness of predictive results and should contribute managerially useful information to research questions which traditionally have been resolved solely through the application of “goodness of fit” effectiveness measures.