Monitoring and value-add by venture capital firms in investee firms: the case of foreign VCs operating in India

This paper makes an attempt to explain the differing intensities of involvement by VC firms in the investee companies funded by them. To start with, we quantify VC involvement intensity by developing an index and then divide the VC firms in our sample into three distinct clusters. Based on the profiles of these clusters, we conclude that both - the need for monitoring and that for value-addition play an equally important role in determining the intensity of monitoring. We find that Foreign VCs do not exhibit a uniform pattern with respect to their intensity of involvement. One set of foreign VCs avoid early-stage and high-tech sector focused investments altogether. They prefer niche later stage ventures which they can help scale up given their resources and networks. The second type of foreign VCs are those that tackle the agency risks associated with early-stage and high-tech venture investing head-on.