Foreign and Domestic Capital Investment: A Matter of Opportunity Versus Choice

This paper addresses an important omission in the venture capital literature by comparing the monitoring behavior of foreign and domestic venture capital firms (VCs). Evidence from 31 VCs in India (84% response) shows foreign VCs were significantly more likely than domestic VCs to be involved at the strategic level while domestic VCs were significantly more active at the operational level. Foreign VCs placed significantly more emphasis on restrictions on additional borrowings. Domestic VCs placed significantly more emphasis on specifying certain accounting policies while foreign VCs placed significantly more emphasis on monthly management accounts. Domestic VCs place significantly more emphasis on industry specialist board membership.

The above is the abstract for a paper titled “Do Foreign and Domestic Venture Capital Firms Differ in Their Monitoring of Investees?” which originally appeared in the November 2nd, 2004 Asia Pacific Journal of Management.

While the subject matter in and of itself is quite fascinating, I might not have given it more attention beyond the initial interest had I not just recently written a post regarding the challenges US-based Venture Capitalists are facing in terms of making investments in Canadian high tech companies.  The obstacles as reported, are due to what has been referred to as onerous cross-border laws, and in particular Section 116 clearance certificates.

Because of the “timing,” it seemed that a closer look into the world of Foreign and Domestic capital investment warranted consideration.

Add into the equation my recent interview with one of the US’ leading high tech entrepreneurs and investment experts Brad Feld, regarding the need for Founders Visas for foreign graduates of US institutions, and the rest of the pieces as they say fell into place.

Joining me on November 14th at 4:00 PM EST to talk about the differences between Foreign and Domestic Capital Firms, including the challenges and benefits each faces and the value they deliver is Brad Feld.

Visit the PI Window on Business Main Show Page on Blog Talk Radio for further details, or the PI Window on Business Blog.  In the meantime, use the following On-Demand Player to tune into the live broadcast of my November 20th interview with Brad Feld.

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