Luisa Alemany

Deal Structuring in Philanthropic Venture Capital Investments: Financing Instrument, Valuation and Covenants

Philanthropic venture capital is a financing option available for social enterprises that, like traditional venture capital, provides capital and value added services to portfolio organizations. Differently from venture capital, philanthropic venture capital has an ethical dimension as it aims at maximizing the social return on the investment. This paper examines the deal structuring phase of philanthropic venture capital investments in terms of instrument used (from equity to grant), valuation, and covenants included in the contractual agreement. By content analyzing a set of semi-structured interviews and thereafter surveying the entire population of philanthropic venture capital funds active in Europe and in the United States, findings indicate that the non-distribution constraint holding for nonprofit social enterprises is an effective tool to align the interests of both investor and investee. This makes the investor behaving as a steward rather than as a principal. Conversely, while backing non-profit social ventures, philanthropic venture capitalists structure their deal similarly than traditional venture capital, as the absence of the non-distribution constraint makes such investments subject to moral hazard risk both in terms of perks and stealing and social impact focus.

Productivity growth in Spanish venture-backed firms

This chapter presents an innovative proposal to analyze the economic impact of venture capital on investee companies to address the issue of causality. We test whether productivity growth rates are better in venture-backed companies than in comparable non-venture-backed ones for a sample of 518 Spanish companies. This approach is superior to the isolated analysis of employment or sales growth since venture-backed companies would benefit from a flow of funds that the non-venture-backed would not obtain. Our findings show that labor productivity gains are statistically higher in the venture group for industry, trade and services sectors. Regarding capital productivity growth, rates are statistically significant in all sectors except for raw materials.

Venture capital in Spain: evolution, characterisation and economic impact analysis

Venture capital in Spain has a short history, but its evolution and current trends show enormous potential. This paper characterises the Spanish venture capital sector and provides data on the economic impact of venture-backed companies. First, it summarises its history from 1972 to date. Second, it provides some key figures on supply and demand for venture capital. Finally, it presents an estimation of the economic impact of venture-backed companies using an unbiased sample of the top three regions in terms of venture capital activity. The figures are then compared to a control group of similar companies financed from alternative sources. The results are very encouraging, with implications for future regional development policies.

How Do Philanthropic Venture Capitalists Choose Their Portfolio Companies

This paper examines the deal flow and screening process characterizing the philanthropic venture capital investment model. The practices explicitly adopted by philanthropic venture capitalists are then compared to those employed by traditional for-profit venture capitalists to understand whether the investment behaviour of the two investor categories is the same. By surveying the population of European and US philanthropic venture capitalists, results suggest that they originate and select deals similarly to traditional venture capitalists. However, they also adopt different deal origination criteria which are not traditionally used by venture capitalists, such as, incubation and direct creation of an organization in the event of not finding a suitable one. Furthermore, screening variables such as “deal terms” and “technology” are not considered to be as important as in the case of venture capital.

Early-Stage Investors’ Criteria and New Venture Financial Performance: Are They Related?

In this study, we examine whether there is a relationship between the three key espoused criteria that early-stage investors use for evaluating new venture opportunities (the entrepreneurial team, the market potential and the product/service) and subsequent new venture performance. We test this with a sample of 55 new ventures that were evaluated by a group of angel investors during 2010-11, as they entered the business angel network evaluation process, and public financial information about these ventures that was collected in 2012. Our results suggest that investors’ most common criteria for picking new venture opportunities, with the exception of founder team assessments, are not very predictive of future venture performance. Our study contributes to the long-standing debate on what are the critical dimensions that investors should pay attention to when evaluating opportunities and, more generally, to the under-researched topic of what drives early-stage investment performance, at least at the pre-investment and deal evaluation stages.

Philanthropic Venture Capitalists’ Post-Investment Involvement with Portfolio Social Enterprises: What Do They Actually Do?

This chapter presents results from an empirical study concerning post-investment value-added services provided by philanthropic venture capitalists to their backed social enterprises. Results show that the most important activity consists in the provision of strategic advice for organizational development. Philanthropic venture capitalists act as advisors and mentors of social entrepreneurs. Also, findings show how important is facilitating access to future potential funders on the side of the social enterprise.

Lessons from the Strategy of Banco Santander:The Three-Step Process of Internationalisation in Retail Banking

How do local services internationalise? Executives in retail banking face the challenge of internationalising a service which is local in nature. This research proposes a new model that shows some basic similarities with previous conceptual models. However, it incorporates the uniqueness of service industries where entry into new markets usually starts with foreign direct investment. This article analyses in depth the successful internationalisation of a retail bank, Banco Santander, from 1985 to 2005, extending traditional internationalisation models to a service industry. The methodology consists of longitudinal data and qualitative methods. The experience of Banco Santander, the leading bank in Spain, the Euro-zone and Latin America, shows an internationalisation process based on three steps. The first of these is to develop capabilities in the home market. The second step is to create options for leveraging capabilities in new international markets, either through acquisition of a minor player or through strategic alliances with established local companies. The analysis shows that at this step, market selection is based on cultural proximity, geographic focus and deregulation or increased competition. Finally, the third step consists of acquiring a leading local competitor and a quick international roll-out followed by implementation of integrated capabilities.