Erik P. M. Vermeulen

The Balance between Exploration and Exploitation in the “New” Venture Capital Cycle: Opportunities and Challenges

Abstract nThere is arguably a balance between exploration and exploitation within a commercial organization which leads to sustainable growth and value creation. Exploratory activities are associated with search, innovation, risk-taking and experimentation. Activities, such as selection, implementation and execution are considered exploitative in nature. We show that the governance structures and mechanisms that are typically employed in venture capital-backed companies ensure an optimum balance between the exploratory behavior of entrepreneurs and the exploratory focus of venture capitalists. New players in the venture capital cycle, such as crowdfunding platforms and corporate venture capital units, often fail to understand the importance of the interaction and interrelation between the apparently opposing exploratory and exploitative activities. However, collaborative venture capital models that are currently emerging appear to restore the necessary equilibrium in the “new” venture capital cycle.