Hybrid Venture Capital Fundraising In Emerging Markets: A Pitch

Jurek, Martin Article Hybrid Venture Capital Fundraising In Emerging Markets: A Pitch Journal of Accounting and Management Information Systems (JAMIS) Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Jurek, Martin (2018) : Hybrid Venture Capital Fundraising In Emerging Markets: A Pitch, Journal of Accounting and Management Information Systems (JAMIS), ISSN 2559-6004, Bucharest University of Economic Studies, Bucharest, Vol. 17, Iss. 1, pp. 167-177, https://doi.org/10.24818/jamis.2018.01009 This Version is available at: https://hdl.handle.net/10419/310703 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ Accounting and Management Information Systems Vol. 17, No. 1, pp. 167-177, 2018 DOI: http://dx.doi.org/10.24818/jamis.2018.01009 Hybrid venture capital fundraising in emerging markets: A pitch Martin Jureka, 1 a University of Economics, Prague, Czech Republic Abstract: This paper applies the pitch template developed by Faff (2017) for an academic research topic in venture capital finance, with a focus on government fundraising in Central and Eastern European countries. The template summarizes the key elements forming the structure of any research proposal. After an introduction and brief commentary on the pitch, a personal reflection on the “process of research in business course” experience is presented. Keywords: Pitching research; Venture capital; Private equity, Government funds, Central and Eastern European countries JEL codes: M48, G24 1. Introduction This paper is a descriptive analysis of a so called pitch template, as well as its application and includes a personal reflection on an experience from professor Faff´s 3-day course titled “The Process of Research in Business,” where this concept was first introduced to the author. The “pitch concept” is derived from Faff (2017) which is a follow up on Faff (2015). In this paper, the application on an academic research topic in venture capital finance is presented. Regarding my scholarly background, I already received my PhD degree in 2014, but started to work as a full time assistant professor at the University of Economics in Prague in just this academic year. Upon reflection, while studying for my PhD degree, it may be needless to admit that my research activity was not very abundant. Using Stokes (2013) description, the adverse factors for my rather 1 Corresponding author: Martin Jurek, Department of International Business, University of Economics, Prague; W. Churchill Sq. 1938/4, 130 67 Prague 3 – Zizkov, Czech Republic; tel. (+420) 775 691 601; email address: martin.ju[email protected] Accounting and Management Information Systems Vol. 17, No. 1 168 mediocre research performance were both the opportunity and approach conditions. 1 Especially the lack of patronage and no research team to be part of were my main hindrances. Further, according to Sutton and Brown (2012, cited in Stokes, 2013) I could identify myself with the “idealist” researcher – valuing more the outcomes and contributions of one´s research. 2 As a result of the background described above, my position of a novice researcher was very suitable for “The Process of Research in Business” course and I took the invitation to attend Professor Faff´s seminars with great pleasure. The remainder of this paper is structured in the following way: Section 2 gives a brief commentary on the pitch. Section 3 then provides my personal reflections on the “pitch concept” and related relevant comments on Professor Faff’s 3-day course, “The Process of Research in Business”. The last section concludes. 2. Brief commentary on the pitch The first draft of the pitch was completed in April 2017 and submitted as part of the pre-course homework exercise to the “The Process of Research in Business” course. The estimated time spent on it exceeded one working day – excluding literature review. This initial pitch was presented to professor Faff during the 3-day course. Consistent with the Faff (2017) expectations of a pitch evolvement, the very first version was rough, raw and incomplete. Receiving very valuable feedback and discussing diverse elements, the pitch was revised, important aspects reconsidered and most of the comments applied. The final version of the pitch on determinants of venture capital activity, with its focus on government support in Central and Eastern European countries is shown in Table 1. According to Faff (2017), this pitch is classified as a “real” and an “owned” pitch and relates to a research topic that I am currently progressing. The basic research question captured is: How do government funds drive the venture capital activity in Central and Eastern European countries? The selection of foundational papers follows the three rules of thumb approach 3 . Dias and Macedo (2016) identify six main drivers of the demand and supply of venture capital funds through factor analysis. Groh and Liechtenstein (2011) examine the diverse limited partnerships operating in Central and Eastern European countries and identify funds allocation determinants. Overall current tendencies of venture capital in emerging markets (including thus also, Central and Eastern European countries) are introduced by Lerner et al. (2016). The motivation for this research topic emanates not only from academic literature itself, but is also linked to an actual market pattern. Government investment funds Hybrid venture capital fundraising in emerging markets: A pitch Vol. 17, No. 1 169 have appeared in many developed European venture capital markets during past twenty years. Following this trend, investment funds with government support have already been launched in some and will begin in other Central and Eastern European countries (e.g. in the Czech Republic in late 2017). Is the economic rationale based on the so called equity gap on the supply side sufficient? Is the venture capital activity not hindered rather by the demand side factors? The pitch continues with the core of the template built around a “3-2-1” design, following Faff (2013). The “three” represents essential elements of the Idea, the Data and the Tools. The “Idea” part elaborates further on the initial research question: How do determinants of VC activity influence the investment activity in emerging countries? Is the lack of government support the main driver of imbalance between the venture capital supply and demand? Are the differences decisive when justifying such financial support? Factor analysis applied with its dependent/independent variables and description of data is displayed in Table 1. More specifically, the panel data methodology is employed, as data on crosssectional time series is available. It allows us to control for the effects of variables that specifically affect the dependent variable of each country (individual heterogeneity). The econometric method for our regression model is a generalized least square estimation. To test the presence of autocorrelation in the residuals of our regression equations, the Durbin-Watson statistic is used. The potential endogeneity is tested by the Hausman test. The “two” presents answers to the two key questions: What´s new? So what? To our knowledge, the currently important role of government funding of venture capital in some emerging markets has not yet been thoroughly investigated. The insufficient venture capital supply has been identified as a main driver of venture capital market performance in Western European countries (Kraemer-Eis et al., 2016). Such imbalances between demand and supply can be more pronounced in growing emerging markets. It might be estimated that, for the case of emerging markets, the determinant of government support is thus recommended to be added to the six key parameters shaping national venture capital as presented by earlier studies (e.g. Groh & Liechtenstein, 2011). According to Lerner (2002), the theory of public finance mentions that any public support can be an appropriate response in relation to activities that generate positive externalities. If this was not the case of the venture capital support, the crowding out effect could, on the contrary, deteriorate the venture capital in emerging markets. The “one” is describing the number one goal – the contribution of the research. The primary source of the contribution is researching venture capital activity in Central and Eastern Europe with a focus on the actual importance of government support in the venture capital emerging markets. Accounting and Management Information Systems Vol. 17, No. 1 170 Table 1. Completed 2-page pitch template on an ’academic research topic in venture capital finance’ Hybrid venture capital fundraising in emerging markets: A pitch Vol. 17, No. 1 171 Accounting and Management Information Systems Vol. 17, No. 1 172 Hybrid venture capital fundraising in emerging markets: A pitch Vol. 17, No. 1 173 Accounting and Management Information Systems Vol. 17, No. 1 174 4. Personal reflections on the pitch exercise Ratiu (2015) confirms that “starting” is the major challenge when doing research. In accordance with my short academic experience, I would dare to add that the biggest hurdle is to know how to start. In this respect, the pitching template is an excellent “know-how” tool to any PhD students or novice researchers. This tool not only directly guides through the preliminary phases of any research proposal, but also provides its user a great evaluation mechanism to any research ideas. The concise layout of the template particularly helps manage all thoughts in an effective way. The pitching task is best thought of as a dynamic and iterative process, in which the “path” to a completed pitch is non-linear and unpredictable (Faff, 2017). According to my experience, out of the eleven elements characterizing the pitch template, the idea, contribution, motivation and data were the four most time consuming. As far as linearity is concerned, Faff (2017) evaluates its degree based on a user´s behavior on the PitchMyResearch.com. web portal. A caution here is suggested as, in my case, this approach would not reflect reality. I indeed have proceeded in a non-linear way to use the copied pitch template into a text document. However, when completing the template online, I copied and pasted all the individual parts of the template from the text document, from the top to the bottom. The web portal would have thus captured and reported my behavior as strictly linear. Unda (2015) expresses her fascination over the use of the “Mickey Mouse” diagram to illustrate a triple intersection of research attention in connection to her childhood memories of this cartoon character. My admiration of the triple Venn diagram depicted in one´s clarification of the contribution of research to current literature. And as Faff (2017) suggests, answers to the two questions: “What´s new?” and “So what?” is the “holy grail” of any research. Kiley and Wisker (2009) also confirm that many PhD graduates are unable to explain why or how it was that their research was significant or important – identifying the “So what?” factor of the research. The “Mickey Mouse” diagram, applied to my pitch displayed in Figure 1, helped to stimulate my thinking toward “innovation” rather than “invention”. As Faff (2013) highlights, as novice researcher I also at first fell for the “trap” of taking a very literal interpretation of the word “new”, when starting my “new” research. With guidance from the “Mickey Mouse” diagram I clarified the “innovation” of my research that might deliver reasonably influential outcomes. I agree with Beaumont’s (2015) expression about the “other considerations” section. Considering target journals and examining the “risks” of competitors and of obsolescence have earlier not much attracted my attention.