An examination of the determinants of the incidence and scale of seed capital investments by venture Capital firms 1962-2002

Abstract

Employing both behavioural decision making and agency theories, our study seeks to identify those factors that influence a venture capitalist's (VC) initial decision to undertake seed capital investments and then subsequently to determine the scale of seed investment activity. We find investor age, timing of investment, and fund location to be of importance. We also demonstrate that the size of the fund and the existing number of portfolio firms exert opposite influences on the level of seed capital activity of the VC firm. We suggest that seed activity is a valuable source of market intelligence for leading VC firms seeking proactively to identify and invest in novel technologies. Our findings are based on an analysis of 2,9491 VC funds worldwide from 1962 to 2002.