Title: How venture capital investors view radical strategic change in high technology new ventures

Authors: Eli Gimmon, Eyal Benjamin, Liora Katzenstein

Addresses: Tel-Hai Academic College, Israel 40 Laskov St. Haifa 34950 Israel. ' 4 Dekel Street Or Yehuda 60407 Israel; Swinburne University, P.O. Box 218, Hawthorn, Vic 3122, Australia. ' ISEMI, Tel Aviv, Israel P.O. Box 39163 Tel-Aviv 61391 Israel; Swinburne University, P.O. Box 218, Hawthorn, Vic 3122, Australia

Abstract: Radical strategic change, a common event in high technology new ventures, presents a conflict between potential opportunity and the risk of departing from a planned and approved strategy. This study explores investors| perspectives regarding RSC in their portfolio companies, based on interviews of 13 private investors who are active venture capitalists or business angels. The study explores the investors| views based on three theories of VC-entrepreneur relationships: agency theory, stewardship theory and game theory. The findings indicate three approaches taken by investors: avoidance, expectation and passivity. Since the success of radical strategic change is critical to venture performance, it is suggested that investors adopt the expectation approach, which optimises the prisoner|s dilemma inherent in the VC-entrepreneur relationship during such events. The findings of this exploratory study indicate the need for further research.

Keywords: radical strategic change; new ventures; high technology; venture capital investment; investors; high tech firms; entrepreneurship; agency theory; stewardship theory; game theory.

DOI: 10.1504/IJEV.2010.030979

International Journal of Entrepreneurial Venturing, 2010 Vol.1 No.3, pp.309 - 326

Published online: 15 Jan 2010 *

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