Venture Capital Impact on the Legitimacy of Entrepreneurial Firms in Sweden:
Abstract: This paper investigates if and how a venture capital (VC) firm adds value to an entrepreneurial firm in which it has invested by increasing its legitimacy. The paper also explores what factors affect the ways added legitimacy adds value to the venture. These questions are explored in the context of Sweden’s special entrepreneurial and venture capital environment which in many ways differs from for example that of the US, which has been the context for most studies on the matter. By using theories of asymmetric information, transaction cost theory and interorganizational relationship theory, hypotheses are formulated on the mechanisms of added value, endorsement and the factors affecting endorsement. Based on the pre-study, the theoretical base and on previous studies, a survey are conducted among 220 Swedish high technology entrepreneurial firms. 67 valid responses are collected and analyzed using descriptive analysis tools and regression analysis. The results indicate that VC endorsement does add value to the entrepreneurial firms and that VC endorsement is related to switching costs, firm age and active VC firm marketing. The results also indicate that Swedish entrepreneurs do value the legitimacy enhancing effect of VC but that this is indirect due to their entrepreneurial profile and context.
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