Title: Exploration-exploitation dilemmas of venture capital funds: the role of organisational slack and horizons

Authors: Shmuel Ellis; Tamar Sagiv; Israel Drori

Addresses: Faculty of Management, Tel Aviv University, Ramat Aviv, Tel Aviv, 69978, Israel ' Faculty of Management, Tel Aviv University, Ramat Aviv, Tel Aviv, 69978, Israel ' School of Business, College of Management, 7 Yizhak Rabin Blvd., RishonLezion, 75490, Israel; Faculty of Management, Tel Aviv University, Ramat Aviv, Tel Aviv, 69978, Israel

Abstract: This paper analyses the investment decisions of venture capitalists (VCs). Drawing on March's conceptual exploration-exploitation framework, we examine whether organisational slack and organisational horizons can predict exploration and exploitation behaviours. Using data on VC funds that operated in Israel between 1990 and 2004, we explore two central VCs' dilemmas: the first, whether to invest in startups at their seed stage, and the second - when to opt for an exit. We found that whereas organisational slack and time horizons predicted explorative performance, exploitation was found as more dependent on situational factors and more strongly associated with investors' pressure. The findings are discussed in terms of the limited ability of top management teams to maintain an optimal balance between exploration and exploitation in organisations in general, and in VC funds in particular.

Keywords: exploration vs. exploitation; venture capital; organisational slack; organisational horizons; Israel; investment decisions; startups; seed stage; exit strategy; situational factors.

DOI: 10.1504/IJEV.2014.064690

International Journal of Entrepreneurial Venturing, 2014 Vol.6 No.3, pp.220 - 241

Received: 16 Jan 2012
Accepted: 21 Oct 2012
Published online: 18 Sep 2014 *

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