Operating in disguise: Perception overrides reality

Abstract: This paper adds to the previous research on Management control systems (MCS) in venture capital (VC) firms. By conducting 15 interviews with 12 VC firms in a cross-sectional study, the paper adds to the limited research of MCS in a VC setting and further explores how VC firms can use MCS to balance the tension between control and innovation relating to their portfolio companies. The theoretical framework takes its starting point in Bedford & Ditillo (2021) and adds the element of perceived interference, in order to make the framework more suitable to a VC setting. The paper finds that innovation is crucial for VC firms and that innovation is tied to the individuals and their capabilities, rather than technological assets. Secondly, the paper finds that it is not the specific control activity or form that decides the level of utilisation and if innovation is hindered, but rather if the control activity is perceived as interfering with day-to-day operations. Lastly, the paper adds to the research domain by highlighting that social and contractual controls are the two most important control forms as they mostly are naturally non-interfering, or if not can be disguised to be perceived as such.