The effect of venture capital backing on companies’ subsequent lobbying efforts
| Date | 08 July 2019 |
| Pages | 241-253 |
| Published date | 08 July 2019 |
| DOI | https://doi.org/10.1108/JEPP-07-2019-109 |
| Author | Ekin Alakent,Mine Ozer,M. Sinan Goktan |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
The effect of venture capital
backing on companies’
subsequent lobbying efforts
Ekin Alakent
California State University, Hayward, California, USA
Mine Ozer
SUNY Oneonta, Oneonta, New York, USA, and
M. Sinan Goktan
California State University, Hayward, California, USA
Abstract
Purpose –The purpose of this paper is to explore the effect of venture capital (VC) funding as a form of
ownership on lobbying strategies of venture-backed companies.
Design/methodology/approach –The sample consists of venture-backed IPO companies between 1999
and 2014. The authors collected IPO data from the Thompson Securities Data Company (SDC) database.
The authors collected VC data from SDC VentureXpert database and lobbying data from the Center for
Responsive Politics database (opensecrets.org).
Findings –Consistent with the hypotheses, the authors find that VC-backed companies spend less on
lobbying compared to non-VC-backed counterparts. However, this relationship is moderated by companies’
R&D intensity. R&D intensive VC-backed companies choose to spend more on lobbying.
Research limitations/implications –The research indicates that although VC backing has a negative
impact on lobbying efforts, R&D intensity creates an incentive for VC-backed companies to spend more on
lobbying in order to shape public policy to their benefit. The study consists of VC-backed companies that are
public. The authors believe that future research can explore political strategies of VC-backed companies
during their pre-IPO stage.
Social implications –The authors believe that political strategies are powerful yet underutilized resources
that VC-backed companies can rely on to shift industries and invest in innovative products that challenge
norms and fight the status quo. Lobbying and other forms of political involvement can help them shape
public policy.
Originality/value –To the best of the authors’knowledge, the study makes a unique contribution to the
literature by exploring the political strategies of VC-backed companies.
Keywords Venture capital, Ownership structure, Lobbying, Resource dependency, MSCI KLD
Paper type Research paper
Introduction
Venture capital (VC) industry is an important source of innovation (Kortum and Lerner,
2000). In recent years, there has been a significant increase in the use of VC to promote
innovative ideas and products in high technology and high growth sectors of the economy
such as information technology, life sciences and clean energy technologies (Da Rin et al.,
2013). The underlying premise is that venture capitalists launch a dedicated fund to
entrepreneurial ventures in sectors that face substantial risk, uncertainty and market
potential and in return expect high financial returns from such investments
(Alvarez-Garrido and Dushnitsky, 2016). VC funding is therefore an attractive option
for entrepreneurial ventures that possess innovative ideas but need both financial and
other resources to commercialize them.
A stream of research has addressed the innovation outcomes of the VC industry such as
patenting (Ahuja and Katila, 2001; Dutta and Folta, 2016; Kortum and Lerner, 2000),
publication (Alvarez-Garrido and Dushnitsky, 2016) and the exit outcomes of their portfolio
companies (Dutta and Folta, 2016). Although prior research has identified market outcomes
Journal of Entrepreneurship and
Public Policy
Vol. 8 No. 2, 2019
pp. 241-253
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-07-2019-109
Received 15 November 2018
Accepted 8 January 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
241
Effect of
venture capital
backing
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