management support and the performance of entrepreneurial start-ups

MANAGEMENT SUPPORT
Stephan Stubner/Torsten Wulf/Harald Hungenberg*
MANAGEMENT SUPPORT AND THE PERFORMANCE OF
ENTREPRENEURIAL START-UPS – AN EMPIRICAL ANALY-
SIS OF NEWLY FOUNDED COMPANIES IN GERMANY
ABSTRACT
We analyze the relationship between management support offered by venture capital
firms and the performance of entrepreneurial start-ups. Based on the reasoning of the
resource-based view, we use a sample of 106 German start-up companies to derive and
empirically test several hypotheses. Our results show that the quality of management
support offered by venture capital firms has an impact on start-up performance. However,
we cannot find clear moderating effects of founder team and company-specific
variables. We discuss and interpret these results and their implications for practice.
JEL-Classification: C42, L14, L25, L84, M13.
Keywords: Empirical Analysis; Entrepreneurial Start-ups; Management Support; Venture
Capital Firm.
1 INTRODUCTION
Entrepreneurial start-ups are those newly founded companies that try to enter, or sometimes
even open up, a market with innovative products or services. In their earliest development
stages, these start-ups are very often hampered by a scarcity of critical resources,
of which fi nancial capital and management capacity are the most predominant (Köhler
(2003)). Many researchers note that the absence of management capacity, defi ned as a lack
of individuals who possess the knowledge, capabilities, and experience necessary to handle
leadership and day-to-day management problems, has a negative eff ect on the development
of start-ups (Klemm (1988); Wupperfeld and Kulicke (1993); Arndt (1995); Schefczyk
(1999a); Hellmann and Becker (2000); Schefczyk (2000a); Strascheg (2001)). Th eir
* Stephan Stubner, Research Assistant, and Torsten Wulf, Professor, Chair of Strategic Management and Organisation,
Handelshochschule Leipzig, Jahnallee 59, 04109 Leipzig, e-mail: stephan.stubner@hhl.de; torsten.wulf@
hhl.de. Harald Hungenberg, Professor, Friedrich-Alexander-Universität Erlangen-Nürnberg, Lehrstuhl für Unternehmensführung,
Lange Gasse 20, 90403 Nürnberg, e-mail: hungenberg@wiso.uni-erlangen.de.
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reasoning is that because of the shortage of management capacity the founders are, among
other things, forced to take care of all operational tasks, such as recruiting personnel,
setting up marketing plans, or legal issues, instead of devoting their time and energy to
improving products and services or developing the market (Cooper, Gimeno-Gascon, and
Woo (1991); Zemke (1995); Schefczyk and Pankotsch (2002)).
Venture capital (VC) fi rms have long since become aware of the problems that start-ups
often face during the early stages. Th erefore, most venture capital fi rms nowadays not
only off er their clients fi nancial capital, but also management support (Amit, Glosten,
and Muller (1990); Busenitz, Moesel, and Fiet (1997); Casamatta (2001); Jain (2001)).
Th is management support not only includes knowledge transfer in specifi c fi elds, such as
strategic management, organization design, marketing or process streamlining, but also
networking activities or coaching founders and senior managers (Geigenberger (1999);
Schefczyk (2000b); Feinendegen et al. (2001); Nathusius (2001); Brinkrolf (2002)). Th e
VC fi rms themselves, and also anecdotal stories about successful start-ups in the press and
consultants’ reports, constantly stress the positive eff ect that management support has on
the performance of start-ups (Barney et al. (1996)). As a consequence, the relevance of
management support for entrepreneurial start-ups is now widely accepted. Many startups
even state that they actively search for both fi nancial capital and management support
when cooperating with a venture capital fi rm and that often the real benefi t is expected
from the latter (Mittendorfer (2001); Stadler (2001); Strascheg (2001)).
Nevertheless, the few empirical studies that do analyze the relationship between management
support and the performance of entrepreneurial start-ups show inconsistent results
(Sapienza and Gupta (1994)). Some studies support the notion of a positive relationship
between the two variables (Sapienza and Timmons (1989a); Sapienza and Timmons
(1989b); Sapienza (1992); Schefczyk (2000a); Schefczyk (2000b)). Others fi nd diff erent
results and conclude that no clear relationship exists (Rosenstein et al. (1989); Rosenstein
et al. (1993); Barney et al. (1996)). Additionally, most research on this subject is not
done from the perspective of the start-up, but from the viewpoint of the VC fi rm, and is
focused on North American companies (Sapienza and Timmons (1989a); Sweeting and
Wong (1997); Schefczyk (1999b)). Th us, it seems that so far, no research has suffi ciently
explored the relationship between management support and the performance of entrepreneurial
start-ups, and especially not for non-U.S. fi rms.
For this reason, our main aim in this paper is to present the results of an empirical study
that analyzes the contribution of management support off ered by venture capital fi rms to
the performance of entrepreneurial start-ups in Germany. We base our study on a survey
of founders and managers of a sample of 106 German start-up companies. In Section 2,
we provide an overview of the theoretical positions that have been used in other studies
to explain the relevance of management support for the performance of entrepreneurial
start-ups. We show that the resource-based view is a particularly relevant perspective for
the research question at hand. Th us, from a resource-based viewpoint, we derive and
empirically test several hypotheses on the performance eff ect of management support. In
Section 3 we describe our research design, both the sample selection and the defi nition
and measurement of variables. Sections 4 and 5 present, discuss, and interpret the main
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results of the study. We close with a discussion of the implications for further research and
for corporate practice.
2 THEORY AND HYPOTHESES
Research on the relationship between venture capital fi rms and entrepreneurial start-ups
is based on a variety of diff erent theories, with the principal agent theory being one of
the most popular approaches (Amit, Glosten, and Muller (1993); Boshoff (1995); Amit,
Brander, and Zott (2000); Manigart and Sapienza (2000); Bonnet (2001); Brettel, Th ust,
and Witt (2001); Low (2001); Jessen (2002)). However, in our study, the principal agent
approach is less appropriate, because our focus is on a special aspect of the relationship
between VC fi rms and entrepreneurial start-ups, namely the impact of management
support on the performance of these start-ups. Th e management support that a start-up
company receives is a valuable resource that has a positive eff ect on the company’s performance.
Th erefore, the resource-based view is a more suitable theoretical approach in this
case, even though it has seldom been applied in this context in the past (Brown and
Greene (1997); Manigart, Baeyens, and Van Hyfte (2001); Maula (2002)).
Th e resource-based view has become prominent, particularly in strategic management
research over the last 20 years, as a theoretical explanation for sustained competitive advantage,
and thus the success of companies. It is based on the assumptions that markets are
imperfect and that resources are heterogeneously distributed among companies. Building
on these assumptions, the resource-based view regards the idiosyncratic resources of a
company as the main source of its competitive advantage (Wernerfelt (1984)). According
to Barney’s (1991) study, such “resources include all assets, capabilities, organizational
processes, fi rm attributes, information, knowledge etc. controlled by a fi rm that enable
the fi rm to conceive of and implement strategies that improve its effi ciency and eff ectiveness.”
However, not all resources of a company have the potential to become a source
of competitive advantage. Rather, such strategically relevant resources must fulfi ll fi ve
requirements (Peteraf (1993)): First of all, they have to be valuable, i.e., they must have a
positive impact on the effi ciency and eff ectiveness of the fi rm. Secondly, these resources
should be rare. Th is means that they must not be widely available and at the same time
must be in high demand. Additionally, they must not be easy to copy or transfer, so that
competitors cannot easily imitate these resources. Finally, resources are only strategically
relevant if no substitutes exist, meaning that no other similar resources are available that
generate the same benefi t (Peteraf (1993); Chi (1994); Barney (1991)). Intangible assets,
such as know-how, management skills, industry contacts, or a brand name that are often
very complex and company-specifi c, have a high potential of fulfi lling these fi ve requirements
and becoming strategically relevant resources (Hall (1992)).
Th e resource-based view’s reasoning can explain the impact of management support off ered
by venture capital fi rms on the performance of entrepreneurial start-ups. Especially in their
earliest development stages, these start-up companies are generally marked by a scarcity
of resources necessary to successfully compete in a market (Achleitner and Bassen (2002);
Christensen (2003)). Mostly, their resource base in this phase is limited to the knowl-
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edge, experience, and motivation of the founders, but other important resources, such
as fi nancial capital, management capabilities, industry experience or important contacts
to other players in and around the respective industry, are missing (Amit, Glosten, and
Muller (1990); Chandler and Hanks (1998); Klemm (1988)). However, since a timely
proof-of-concept and a rapid market entry are vital for the success of entrepreneurial startups,
they cannot build up these resources themselves, but must acquire them from outside
(Bamberger and Wrona (1996)). Th us, the management support off ered by VC fi rms is
one way of closing this resource gap. Venture capital fi rms are capable of providing such
support because their investment managers have often been entrepreneurs themselves,
possess a background in management consulting, or have been in higher management
positions of larger companies. Furthermore, VC fi rms can build on experience made in
other start-up companies where similar problems have occurred and been solved before
(Gupta and Sapienza (1992); Norton and Tenenbaum (1993); Bascha and Walz (2001);
Nathusius (2001); Krauss, Güdel, and Schwarz (2001); Arthurs and Busenitz (2003)).
Th e management support off ered by VC fi rms can thus be regarded as a rare and valuable
resource for entrepreneurial start-ups, thus fulfi lling the fi rst two requirements of a strategically
relevant resource.
We can also argue that no equivalent substitute for this type of resource exists, since most
start-up companies do not have the fi nancial means to hire the management consultants
or experienced managers who would be able to off er the same kind of support. Further,
management support cannot be easily imitated or transferred to other companies, because
the situation of every start-up company is at least slightly diff erent, e.g., concerning the
industry context or the background and the experience of the founders, thus requiring
diff erent actions. Th erefore, according to the resource-based view, management support
is a strategically relevant resource that has a positive eff ect on the performance of entrepreneurial
start-up companies.
However, this argumentation only holds true if the management support that VC fi rms
deliver is of high quality and specifi cally designed to the needs of the portfolio company.
If this requirement is not met, i.e., if VC fi rms off er only a standardized form of management
support, this resource will not become a source of competitive advantage, since it
would not be valuable or rare, and would also be imitatable and transferable. All in all, this
means that management support can only fulfi ll the requirements of a strategically relevant
resource and have a positive impact on fi rm performance if it is of high quality. Past
research shows that such a high quality of management support off ered is ensured if the
venture capital fi rm provides the entrepreneurial start-up with investment managers who
are well informed about their portfolio company, who dedicate a lot of their time to this
company, and who have the relevant knowledge and competencies. A high level of information
is important, because company-specifi c management support can only be delivered
if investment managers are always aware of the problems that the start-up company
faces (Higashide and Birley (2002)). Dedicating a high share of total working time to a
specifi c start-up company has a positive eff ect on the quality of management support,
because only then will investment managers be able to give the detailed advice necessary
to solve the problems of the start-up company. Finally, only an investment manager who
has the necessary knowledge and experience will be able to deliver good advice. Industry
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and functional experience, as well as a clear understanding of start-up problems and social
competencies, are particularly relevant in this context (Cooper, Gimeno-Gascon, and Woo
(1991); Betsch, Groh, and Schmidt (2000); Wong (2002); Welpe and Dowling (2002)).
Th ese factors ensure that the management support off ered by VC fi rms is of high quality
and tailored to the specifi c needs of the respective start-up company. In turn, the high
quality of management support then has a positive eff ect on the performance of entrepreneurial
start-ups. Th is reasoning is refl ected in hypothesis 1:
Hypothesis 1: Th e quality of management support off ered by venture capital fi rms is positively
related to the performance of entrepreneurial start-up companies.
As we noted in the introduction, very few empirical studies have addressed the relationship
between management support and the performance of entrepreneurial start-ups,
and most of these studies do not exclusively analyze the role of management support, but
instead look at the overall relationship between venture capital fi rms and start-up companies,
and only partly address the role of management support. Some of these studies found
a positive impact of management support or related aspects on the performance of startup
companies. Schefczyk (2000a; 2000b) for example, in a study of German venture
capital fi rms, identifi ed management support as a major success factor of start-up companies.
Similarly did Frederikson et al. (1990; 1997), in a survey of investment managers in
venture capital fi rms and of managers of entrepreneurial start-ups in the United States,
fi nd a positive psychological eff ect of management support. Sapienza (1992) as well as
Sapienza and Timmons (1989a; 1989b) were able to detect a positive relationship between
the type and the intensity of the interaction between investment managers and start-up
companies and the start-ups’ performance. MacMillan, Khoylian, and Kulow (1989), in
contrast, could not fi nd clear proof for a connection between the intensity of management
support and the performance of start-ups. Similarly, Rosenstein et al. (1989; 1993) show
that the support off ered by VC fi rms has no signifi cant infl uence on fi rm performance.
Th ese inconsistent fi ndings lead us to believe that the relationship between management
support and the performance of entrepreneurial start-ups should not be analyzed
in isolation, but that other variables might play an important role in this context.
Building on the reasoning of the resource-based view, two groups of variables seem to
be particularly relevant: factors related to the founder team as well as company-specifi c
factors (Amit, Glosten, and Muller (1990); Cooper, Gimeno-Gascon, and Woo (1991);
Busenitz, Moesel, and Fiet (1997); Busenitz and Fiet (1999); Schefczyk (1999a); Betsch
et al. (2000); Wong (2002)). Several empirical studies indicate that factors related to the
founder team have an eff ect on the relationship between management support and the
performance of entrepreneurial start-ups (Amit, Glosten, and Muller (1990); Busenitz,
Moesel, and Fiet (1997); Schefczyk (1999a)). In this context, it is argued that the impact
of management support off ered by the venture capital fi rm is the lower the more experienced
and larger the founder team is. Larger and thus more heterogeneous teams are
believed to be less dependent on external advice. Similarly, for founder teams with extensive
work and leadership experience or with a strong educational background in management
a smaller impact of management support on company performance can be expected,
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since the resource gap that management support is supposed to close is not very large in
this case (Shepherd (1999); Shane and Venkataraman (2000); Shepherd et al. (2000);
Sexton and Landström (2000)). Th us, we develop hypothesis 2:
Hypothesis 2: Th e impact of management support on the performance of entrepreneurial
start-up companies is negatively infl uenced by the size and by the level of
experience of the founder team.
Company-specifi c factors, particularly the size and the age of the start-up company, may
also have an impact on the relationship between management support and the performance
of entrepreneurial start-ups. In this context, some researchers argue that in older
and larger companies, management support is less important, since these companies
have built up the relevant resources themselves and thus do not need to acquire them
from outside (Cooper, Gimeno-Gascon, and Woo (1991)). Hypothesis 3 refl ects this
reasoning:
Hypothesis 3: Th e impact of management support on the performance of entrepreneurial
start-up companies is negatively infl uenced by the size and the age of the
start-up company.
Figure 1 summarizes the hypotheses on the relationship between management support
and the performance of entrepreneurial start-ups as well as the impact of the moderating
variables.
Figure 1: Overview of research hypotheses
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3 RESEARCH DESIGN
3.1 SAMPLE SELECTION
Because our aim is to empirically analyze the relationship between management support
off ered by venture capital fi rms and the performance of entrepreneurial start-ups in
Germany, the relevant population comprises all VC-funded start-ups in Germany. Since
no offi cial listing of these companies exists, we had to compile one from diff erent sources.
Th e commercial database Germanhot100, a listing of a variety of start-up companies in
Germany published by the Handelsblatt group, served as a basis for this compilation
(Germanhot100 (2002)). We updated and enlarged this database through interviews with
major VC fi rms operating in Germany. During these interviews, information on the startup
companies in the portfolio of these fi rms was disclosed. Additionally, we analyzed press
releases and newspaper articles to complete the listing. Th us, we were able to identify 516
entrepreneurial start-ups which were operating in Germany in 2002 as the relevant population
for this study. Th is listing was confi rmed in interviews with leading scholars and
practitioners in the German venture capital market.
In September 2002, we sent out a written questionnaire to at least one of the founders or
the managing directors of each of these 516 companies. 215 questionnaires were returned
– equivalent to a response rate of 41.7 percent. We had to exclude 22 returned questionnaires
from the analysis because they came from companies that were not fi nanced by
venture capital and thus did not receive any management support. 87 recipients delivered
only partial information, so these questionnaires also could not be used for our analysis.
Th is led to a fi nal sample of 106 entrepreneurial start-ups.
Th e corresponding response rate of 20.5 percent compares favorably with the respective
rates of other mail surveys that have targeted founders or executive managers (Miller,
Burke, and Glick (1998)). Interviews with a selected number of founders and managing
directors who had not returned the questionnaire and a subsequent statistical analysis
revealed no signifi cant diff erences between responding and non-responding companies.
3.2 DEFINITION AND MEASUREMENT OF VARIABLES
Management support measures: we use seven diff erent measures to assess the quality of
management support off ered by VC fi rms. Six of these measures are related to characteristics
of the investment managers, and serve as indicators of the quality of management
support that they are able to deliver to their portfolio companies. Th ese measures are
the investment managers’ level of information on the start-up company, the amount of
working time that they dedicate to their portfolio company, their functional and industry
experience, their familiarity with start-up problems, and their social competencies. We
measure these variables from the perspective of the founders and managing directors of
the start-up companies.
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To assess the variables, we fi rst asked all respondents to evaluate on a scale from one (“very
well informed”) to fi ve (“poorly informed”) how well the relevant investment managers were
informed about the start-up (Higashide and Birley (2002)). We also asked founders and
managing directors to estimate the percentage of total working time that the investment
managers dedicated to their company. Finally, the respondents had to evaluate the investment
managers’ functional and industry experience as well as their familiarity with start-up problems
and their social competencies on a scale ranging from one (“very good”) to fi ve (“insuffi
cient”) (Cooper, Gimeno-Gascon, and Woo (1991); Betsch et al. (2000); Wong (2002)).
In addition to using characteristics of investment managers, we also measure the quality
of management on the basis of a subjective evaluation of the founders or managing directors
of start-up companies. For this purpose, we asked all respondents to rate the quality
of the management support which they received on a scale ranging from one (“very good”)
to fi ve (“insuffi cient”). Even though such a subjective evaluation has its weaknesses, particularly
with regard to respondents’ bias, it is the only way of directly measuring service
quality, and has been successfully applied in similar studies to assess, e.g., the quality of
consulting services (Hoff mann (1991); Eff enberger (1998)).
Performance measures: Due to the specifi c characteristics of entrepreneurial start-up companies,
no single measure can fully mirror the performance of these companies. For this
reason, empirical studies normally use a set of diff erent indicators to measure the performance
of newly founded companies (Schenk (1998); Damodaran (2001); Achleitner and
Bassen (2003)). Here, we use a similar approach. We measure the performance of entrepreneurial
start-ups on the basis of four diff erent indicators, two objectively assessable measures
– absolute EBITDA and earnings growth – and two measures that require subjective evaluation
by the respondents – their assessment of goal achievement and their evaluation of
the eff ect of management support on their fi rms’ performance. To determine the objectively
measurable performance indicators, we asked all respondents to classify their companies
according to the EBITDA level that they had reached in 2001 into categories ranging
from one (“below 0 €”) to fi ve (“more than 2 mill. €”). Pre-test interviews had shown that
this EBITDA range was adequate and that an absolute fi gure such as EBITDA would be
more easily accessible than would relative fi gures such as ROA or ROE, which are normally
preferred in empirical research. At the same time, we do not consider that using absolute
EBITDA fi gures is a major problem, because most companies in the sample were of comparable
size, so that the diff erence between absolute and relative fi gures is negligible.
In addition to these absolute fi gures, we also asked respondents to classify their companies
according to the EBITDA growth rates that they had reached in the three years 1999
through 2001 into categories ranging from one (“growth of more than 50 percent”) to nine
(“decline of more than 50 percent”). We use the median of these categories over the three
years as a second performance indicator. We chose the median values over three years to
control for outliers in single years (Merz, Weber, and Laetz (1994); Davidsson and Wiklund
(2000); Damodaran (2001); Jessen (2002)). To determine the more subjective performance
measures, we fi rst requested the respondents to assess the level of goal achievement of their
companies in the years 1999 through 2001 on a scale ranging from one (“fully achieved”)
to fi ve (“not achieved at all”). We use the median of the ratings over these three years as the
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performance indicator. Finally, we asked each founder or managing director in the sample
to subjectively evaluate the eff ect of management support on the success of his company on
a scale ranging from one (“very positive eff ect”) to fi ve (“very negative eff ect”).
Founder team measures: We use four variables to assess founder team characteristics: the
size of the founder team, the average work and leadership experience of the founders, and
the level of their educational background in management. We measure the size of the
founder team as the total number of founders of each start-up company. We defi ne work
and leadership experience as the average number of years of the respective experience of
all founders in a company. Finally, to determine educational background in management,
we create a dummy variable that takes the value one if at least 50 percent of the founders
have an educational background in business administration.
Company-specifi c measures: We measure company size as the revenues of the respective
company in 2001. We defi ne company age as the total number of years between the foundation
of the company and the end of 2001.
4 RESULTS
4.1 DESCRIPTIVE OVERVIEW
Th e presentation of the results of this study starts with a brief descriptive overview of the
companies in the sample with particular emphasis on the performance levels which the
companies reached. Afterwards, correlations between the quality of management support
and diff erent performance measures as well as the moderating variables are analyzed in
more detail, before fi nally several regression models are presented. At the end of 2001, the
companies in our sample averaged 4.2 years. Th ey comprise a variety of industries, with
the majority (75 percent) being in the biotechnology, software, internet, and media businesses.
Th e companies in the sample are small: the revenues of 25 percent of the companies did
not exceed €500,000 in 2001, more than 55 percent achieved revenues of less than €1.5
million, and only roughly 8 percent recorded revenues of more than €10 million.
Th e majority of the companies in the sample, 79.4 percent, still incurred losses in 2001.
Only 20.6 percent of the companies reached a positive EBITDA, which in no case
exceeded €2 million. In the years 1999 to 2001, the earnings development of the companies
in the sample is varied. Between 42.4 and 48.1 percent of the companies reported
increasing earnings in those three years, but for between 37.5 and 39.6 percent, earnings
declined in that time period. Nevertheless, for all three years many of the companies stated
that they achieved the goals that they had set for themselves for the years 1999 through
2001. Between 44.4 and 62.2 percent of the respondents indicated that they had either
met their objectives completely or to a large extent in the three relevant years. 21.6 to
32.3 percent said that goals were at least partly achieved, and only between 16.2 and 23.2
percent felt that performance targets were hardly met or not achieved at all.
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Finally, the subjective evaluation of the contribution of management support to the success of
the companies in the sample shows that 38.7 percent of the respondents believed that management
support had a positive, or even a very positive, impact on their company’s performance.
At the same time, 47.2 percent stated that management support had no eff ect at all, and 14.1
percent even saw negative or very negative consequences of management support.
Th e evaluation of the quality of management support off ered by venture capital fi rms is
normally distributed among the companies in the sample. 34.3 percent of the respondents
rated the quality of management support as either good or very good. 23.6 evaluated it as
satisfactory, but 41.5 percent of the respondents believed that the management support
off ered by their VC partner was either barely suffi cient or even insuffi cient (Figure 2 ).
Figure 2: Evaluation of the quality of management support
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Th e descriptive overview of the sample shows that both the perceived quality of management
support and the diff erent performance indicators are more or less normally distributed
among the companies in the sample. Th erefore, we want to know how the two sets
of variables are correlated.
4.2 ANALYSIS OF CORRELATIONS
To analyze the relationship between the quality of the management support off ered by
VC fi rms and the performance of entrepreneurial start-ups, we compute rank correlations.
Figure 3 shows the corresponding matrix of correlation coeffi cients. Th e matrix indicates,
fi rst of all, that the performance measures are hardly correlated with each other. Only

S. STUBNER/T. WULF/H. HUNGENBERG
between the variables “goal achievement 1999-2001” and “earnings growth 1999-2001”
do we fi nd a signifi cant correlation. Th us, we conclude that the four performance indicators
measure diff erent aspects of the performance of start-up companies.
For the relationship between company performance and the quality of management support,
the results of the correlation analysis give us reason to believe that in general, such a relationship
does indeed exist. In fact, three of the four performance indicators show significant
correlations with at least two of the quality of management support measures. Th e
performance measure “subjective evaluation of the eff ect of management support” is even
signifi cantly related to all seven quality measures. Only for the performance indicator “earnings
growth 1999-2001” could we fi nd no signifi cant correlation with any other variable.
When we examine the relationship between founder team variables and the performance
of entrepreneurial start-ups, we fi nd only a very few signifi cant correlations. We fi nd that
the founders’ work and leadership experience have a signifi cant eff ect on goal achievement.
However, we do not observe consistent results for other founder team and performance variables.
Nor do we fi nd a signifi cant relationship with fi rm performance for the two companyspecifi
c variables, company age and size.
Th e results of the correlation analysis lead us to believe that there is a relationship between
the quality of management support delivered by VC fi rms and the performance of entrepreneurial
start-ups. Nevertheless, regression analyses are necessary to test the full model.
4.3 REGRESSION ANALYSIS
To fully explore the eff ect of quality of management support as well as of founder team
and company-specifi c variables on the performance of start-up companies, we develop
several regression models. As the correlation analysis has already indicated, these models
show signifi cant results for three of the four performance indicators. Only for the performance
measure “earnings growth 1999-2001” fi ndings were not signifi cant. Th erefore, we
omit this performance indicator from the following. For all regression models, additional
tests show that the requirements of homoskedasticity and normal distribution were met
and that we could observe neither collinearity nor autocorrelation.
In the fi rst set of regression models, we use “EBITDA in 2001” as an output variable. Altogether,
we develop four regression models for this output variable. Th e fi rst of these four
models comprises only the seven quality-of-management-support measures as predictor
variables. In the second model, we add the founder team variables, and in the third model
we include the company-specifi c variables. For the fourth model, we add interaction variables
and use the forward method instead of the hierarchical method that we applied in
the fi rst three models. Figure 4 gives an overview of the four regression models.
148 SBR 59 April 2007 138-159

Figure 3: Matrix of rank correlations
MANAGEMENT SUPPORT
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Figure 4: Regression models for EBITDA in 2001 as output variable
150 SBR 59 April 2007 138-159
As fi gure 4 shows, all four regression models are signifi cant and explain between 30.7 and
40.6 percent of the variance of the output variable. Th e most important contribution
comes from the quality-of-management-support variables, which account for 30.6 percent
of the explanation of variance. Th e founder-team and the company-specifi c variables add
another 5 and 4.9 percent, respectively. Nevertheless, in the full model (model 3) only
two coeffi cients are signifi cant, those of the variables “share of work time” of the investment
manager and “industry experience” of the investment manager. Two other variables,
“founder team size” in model 2 and “company age” in model 3, just barely miss the range
of signifi cance. From these results we conclude that a higher EBITDA can be reached if
the investment managers of VC fi rms dedicate a greater share of their time to their portfolio
company, and if they have the relevant industry experience. Other variables play only
a minor role. Th us, contrary to expectations, we do not fi nd a clear eff ect of founder-team
and company-specifi c variables on fi rm performance.

MANAGEMENT SUPPORT
Nevertheless, the reduced model 4 shows that the founder-team and company-specifi c
variables do infl uence EBITDA as part of interaction terms. In fact, model 4 shows that
the eff ect of the share of work time that investment managers dedicate to their portfolio
company is increased if founders have very little industry experience and if the start-up
company is relatively large. At the same time, the eff ect of the functional experience of
investment managers is higher in older companies.
We compute a second set of four regression models for the performance measure “subjective
evaluation of the eff ect of management support” as an output variable. Th e fi rst of
these four models takes into account the variables that measure the quality of management
support. Th e second and third models add the founder-team and the companyspecifi
c variables. For the fourth model, we again add interaction variables and use the
forward approach instead of the hierarchical method. Figure 5 gives an overview of these
four regression models.
Figure 5: Regression models for subjective evaluation of the effect of
management support as output variable
SBR 59 April 2007 138-159 151

S. STUBNER/T. WULF/H. HUNGENBERG
As fi gure 5 shows, all four regression models are highly signifi cant and explain between
42.2 and 48.4 percent of the variance of the output variable. Again, the most important
contribution comes from the quality-of-management-support variables, which account
for 42.2 percent of the explanation of variance. Th e founder-team and the companyspecifi
c variables add another 4.8 and 1.4 percent, respectively. However, the relevance
of single variables for the explanation of the dependent variable changes compared to the
fi rst set of regression models. In the full model (model 3), only the coeffi cient of the variable
“subjective evaluation of the quality of management support” is signifi cant. Two other
variables, the work experience of the founders and their background in management, just
barely miss the range of signifi cance in model 2. From these results we conclude that a
more positive evaluation of the eff ect of management support is largely caused by a higher
perceived quality of management support. Other variables play only a minor role. Again,
we fi nd no clear eff ect of founder-team and company-specifi c variables on fi rm performance.
Nevertheless, the reduced model 4 shows that founder-team variables have at least
some infl uence on the performance variable “subjective evaluation of the eff ect of management
support”, namely as part of the interaction terms. In fact, model 4 indicates that the
eff ect of social competencies of the investment managers is increased if the majority of the
founders has an educational background in management.
We perform a fi nal regression analysis for “goal achievement 1999-2001” as an output
variable. For this measure only the reduced model shows signifi cant results. In this model,
we add all the variables, including the interaction terms, and apply the forward method.
Figure 6 gives an overview of the resulting regression model.
Figure 6: Regression models for goal achievement 1999-2001 as output variable
152 SBR 59 April 2007 138-159

MANAGEMENT SUPPORT
As fi gure 6 shows, the regression model is highly signifi cant and explains 24.2 percent of
the variance of the output variable. Also in this case, the quality-of-management-support
variable plays an important role. Nevertheless, it is again a diff erent role from that played
in the fi rst two sets of regression models. Th e degree of familiarity of investment managers
with the problems of start-up companies is the dominant variable in this model. Additionally,
an interaction term has a signifi cant coeffi cient: the eff ect of the share of work time
that investment managers dedicate to their portfolio company is increased if the start-up
companies are bigger.
Th e results of the regression analyses support the fi ndings of the correlation analysis and
indicate that the quality of management support has a positive eff ect on the performance
of entrepreneurial start-ups. Th e regression analyses show that for almost all measures of
the quality of management support and for three of the four performance indicators, such
a positive relationship exists. Th us, the fi ndings support hypothesis 1. However, we do not
fi nd any infl uence of founder-team and company-specifi c variables on fi rm performance
apart from interaction eff ects. In addition, the eff ect of the interaction terms is to a large
extent contrary to expectations. We fi nd that management support is even more important
in bigger and older companies and for founders with a background in business administration.
Th erefore, the fi ndings do not support hypotheses 2 and 3.
5 DISCUSSION AND INTERPRETATION
Th e description of our results shows that there is a positive relationship between the
quality of management support off ered by venture capital fi rms and the performance of
entrepreneurial start-ups. Th us, the central hypothesis of this study, hypothesis 1, receives
support from the empirical analysis. Th ese results of the present study confi rm earlier
fi ndings by Sapienza and Timmons (1989a; 1989b), Sapienza (1992) as well as Schefczyk
(2000a; 2000b), who also report a positive eff ect of the management support on the
performance of start-up companies.
Nevertheless, we fi nd a signifi cant relationship only for three of the four performance
measures. We observe an infl uence of diff erent measures of the quality of management
support for the performance indicators “EBITDA in 2001”, “goal achievement 1999-
2001” and “subjective evaluation of the eff ect of management support”. However, for
“earnings growth 1999-2001”, we are not able to obtain signifi cant results. In view of
this lack of results for the latter measure, it can be argued that earnings growth is not a
valid measure of the performance of start-ups, since the size of the earnings growth that
a company is able to realize in a given period of time depends to a great extent on the
performance level that it had reached at the outset of this period. In fact, a company that
enjoyed a relatively high EBITDA level in 1998 might have faced lower growth rates
in the following years but still have shown a higher EBITDA in 2001 compared to a
company that started from very low EBITDA levels in 1998 and achieved higher growth
rates in the following years.
SBR 59 April 2007 138-159 153

S. STUBNER/T. WULF/H. HUNGENBERG
We fi nd a positive relationship with diff erent performance indicators for almost all the
quality-of-management-support measures. In our regression models, only the variable
“level of information” of the investment manager is not related to any of the performance
measures, perhaps because the level of information that investment managers have on
their portfolio companies is not a strategically relevant resource for these companies, but
rather a prerequisite that all investment managers have to meet. However, we fi nd positive
results for the other measures of the quality of management support. Nevertheless,
the results of the regression analyses create the impression that the relationship between
the quality-of-management-support measures and diff erent performance measures are not
completely consistent. In fact, diff erent quality measures have an eff ect on diff erent performance
measures. For example, EBITDA is mainly explained by the share of work time
that investment managers dedicate to their portfolio company, and by their industry experience.
For goal achievement, the familiarity of investment managers with start-up problems
is particularly relevant, and in the case of the subjective evaluation of the eff ect of
management support, the quality measure “subjective evaluation of the quality of support”
makes the most signifi cant contribution. However, a closer look at the results of the correlation
analysis shows that all seven measures of the quality of management support are
very closely related (fi gure 3). Additional regression analyses show that each of the seven
quality measures can be explained by the other six measures. Th erefore, we argue that in
the regression models, one or two of the quality measures always take on the explanatory
power of the others. Th us, even if certain measures of the quality of management support
do not have signifi cant coeffi cients in all regression models, these variables still exert at
least an indirect eff ect on the output variable. Th is means that combined, at least six of
the seven quality measures consistently refl ect the quality of management support off ered
by venture capital fi rms. For this reason, we believe that in future empirical studies on
this phenomenon, it is advisable to use diff erent measures of the quality of management
support.
Contrary to expectations, we fi nd no direct infl uence on fi rm performance for the founderteam
and the company-specifi c variables. We propose two diff erent reasons for this lack of
fi ndings: on the one hand, it is possible that founder-team and company-specifi c variables
are irrelevant for the performance of start-up companies. However, such an interpretation
contradicts the fi ndings of earlier studies and is also not very plausible (Shepherd (1999);
Shane and Venkataraman (2000); Shepherd and Ettenson (2000); Sexton and Landström
(2000)). In fact, particularly in start-up companies, the experience of founders should be
expected to make a diff erence. Th erefore, a second reason for the lack of fi ndings becomes
more probable. Th is reason relates to the fact that in this study, we assessed the founder
variables from the perspective of the founders themselves. Th is self-assessment might be
biased, that is, founders might, for example, overestimate their experience. Th erefore, we
believe that additional research on the eff ect of founder team variables, e.g., from a venture
capital company’s perspective, is necessary.
Our belief that founder-team and company-specifi c variables actually have an eff ect on
the performance of start-ups is also supported by the results for the interaction variables.
Th ese variables show that quality of management support becomes even more important
if founders lack leadership experience, but also if the founders have a background in busi-
154 SBR 59 April 2007 138-159

MANAGEMENT SUPPORT
ness administration. Interestingly, and contrary to our hypotheses, these interaction terms
also indicate that management support becomes increasingly relevant in larger and older
start-ups. Th us, we interpret management support as a good means of helping founders
cope with the increasing complexities that they face while their venture is growing. Th ese
fi ndings for the interaction terms, which contradict hypotheses 2 and 3, call for further
research on the moderating role of founder team and company-specifi c variables.
Th e issue of causality between the quality of management support and the performance
of entrepreneurial start-ups also deserves some further attention. In fact, our study has
shown only that the quality of management support is positively related to performance.
However, we cannot conclude directly from the data that the quality of this support is
actually the cause of higher performance. Nevertheless, there are three main reasons to
believe that such a causal relationship exists. First of all, we measure performance for the
time period following the assessment of quality of management support. Additionally, we
fi nd a relationship between quality of management support and the performance of startups
for a number of diff erent performance indicators. Finally, a number of other studies
also conclude that management support has a positive eff ect on start-up performance (e.g.,
Sapienza and Timmons (1989a; 1989b); Sapienza (1992); Schefczyk (2000a); Schefczyk
(2000b)). Th erefore, it seems reasonable to regard the quality of management support as
a trigger of performance.
6 CONCLUSION
Th e results of our study give us reason to believe that the management support off ered by
venture capital fi rms has a positive eff ect on the performance of start-up companies. Th is
fi nding supports those of other studies (Sapienza and Timmons (1989a; 1989b); Sapienza
(1992); Schefczyk (2000a); Schefczyk (2000b)). Nevertheless, our results also confl ict at
least in part with the results of yet other studies (Macmillan, Khoylian, and Kulow (1989);
Rosenstein et al. (1989); Frederiksen et al. (1990); Rosenstein et al. (1993); Fredriksen,
Olofsson, and Wahlbin (1997)). Th erefore, we advocate further research on the relationship
between management support and fi rm performance. Th is research should further
explore the eff ects of founder team and company-specifi c variables, which, contrary to
expectations, we do not fi nd are relevant. In the majority of cases, their interaction eff ect
even led to results that contradicted our original hypotheses. Additionally, the application
of diff erent performance measures, e.g., relative measures like ROA or ROE, is necessary.
Last but not least, a comparison of fi rms fi nanced by venture capital with start-ups that
did not receive such funding might yield interesting results on the relevance of management
support.
Despite the need for further research, we derive several implications for start-up companies,
as well as for venture capital fi rms, from the results of our study. For entrepreneurial
start-up companies, we show that the management support off ered by venture capital
fi rms does have a signifi cant performance eff ect. In this context, diff erent aspects of the
quality of management support are of relevance, ranging from the investment managers’
industry and functional experience to the share of work time that they dedicate to start-
SBR 59 April 2007 138-159 155

S. STUBNER/T. WULF/H. HUNGENBERG
ups, and to their familiarity with start-up problems. Th erefore, we conclude that seeking
the support of VC fi rms can be a valuable option for start-ups, even though venture capital
is believed to be an expensive form of fi nancing. Nevertheless, founders and managers of
entrepreneurial start-ups should carefully select their venture capital partners.
For VC fi rms that want to add value through management support, the results of our
study show that a clear focus in selecting portfolio companies is necessary, and that the
number of companies in the portfolio should be limited. Only under these conditions will
investment managers be able to dedicate an adequate share of work time to their start-up
companies, and to contribute the relevant industry, functional and start-up experience.
Ultimately, the main argument of the resource-based view must be taken into account by
venture capital fi rms as well as by entrepreneurial start-ups. Management support will only
become a strategically relevant resource for start-up companies and have a positive performance
eff ect if this support is off ered in a diff erentiated and company-specifi c way.
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