Social Innovation in Venture Capital Firms: Strategy, Structure, and Performance

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Social innovations are solutions related to humanistic needs and the betterment of mankind with the intent of creating social value and eventual societal level changes. Social innovation therefore broadens traditional views of innovation to include processes of societal transformations and human behaviors. These social innovations are becoming more commonplace across all sectors, including capital markets. Private equity and venture capital firms in the capital markets sector engage in social innovation by investing capital with the goal of delivering both economic and social value. Despite the critical importance of venture capital (VC) in the success of social innovations through socially responsible ... continued below

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Jones III, Raymond J. December 2013.

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  • Jones III, Raymond J.

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Social innovations are solutions related to humanistic needs and the betterment of mankind with the intent of creating social value and eventual societal level changes. Social innovation therefore broadens traditional views of innovation to include processes of societal transformations and human behaviors. These social innovations are becoming more commonplace across all sectors, including capital markets. Private equity and venture capital firms in the capital markets sector engage in social innovation by investing capital with the goal of delivering both economic and social value. Despite the critical importance of venture capital (VC) in the success of social innovations through socially responsible investing, there is a paucity of research in understanding the factors that affect the performance of these social VC firms. This research gap is addressed by asking the following primary research question: What is the role of strategic and structural factors in the performance of socially innovative venture capital firms? The firm level research is theoretically based on the well-established design school. This framework highlights the overarching importance of strategy and structure in the accomplishment of firm goals. In the context of the venture capital industry, it was hypothesized that certain unique strategic and structural factors (i.e., stage of investment, age, size, and network relationships) would influence the performance of socially innovative VC firms. A moderated mediation model was proposed to examine these factors and their influence on performance variation. The sample of socially innovative VC firms was generated from the ThomsonOne Private Equity Database. The research design and methodology followed a systematic and objective process. This included identification of the sample of 381 VC firms, collection of mission statements for each VC firm, development of key word list pertaining to social innovation for content analysis and the collection of archival data on each VC firm. Content analysis was then used to identify the degree to which the firm’s strategic orientation (mission statement) was related to social innovation. Finally, both traditional and more cutting edge statistical analyses (Preacher & Hayes, 2008) were used to evaluate the moderated mediation model. The results of this study provide several key take-a-ways for both researchers and practitioners focusing on social venture capital. Firstly, results indicated that firms adopt distinct foci of social investing that directs their strategic orientation. These various foci have vastly differing effects on the firm’s overall performance, the strategic decisions they make, and the architecture of their structural design. It is therefore necessary to treat each focus area separately given differences in strategies, industry and investment focus, and market orientations. Secondly, including socially related language in the firm’s mission statement does not guarantee that a VC firm will actually implement a social orientation or seek to create the social value inherent in social innovation. Thirdly, certain investment strategies appear to be more advantageous depending of the size of the firm and the socialness of the firm’s orientation. Lastly, results supported that the adoption of a social orientation did not negatively influence firm performance. Overall, results suggest that pursuing a social orientation is viable and effective in delivering blended value strategies for VC firms engaging in social innovation. These findings offers socially oriented venture capital firms insights into strategic and structural aspects that are important to their success in achieving positive exists of their portfolio companies, thus increasing both financial and social value.

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UNT Theses and Dissertations

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  • December 2013

Added to The UNT Digital Library

  • Nov. 8, 2014, 11:56 a.m.

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  • Nov. 16, 2016, 12:30 p.m.

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Jones III, Raymond J. Social Innovation in Venture Capital Firms: Strategy, Structure, and Performance, dissertation, December 2013; Denton, Texas. (digital.library.unt.edu/ark:/67531/metadc407767/: accessed October 23, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; .