Performance of Venture-Backed Firms in an Emerging Market Context

Entrepreneurs have trouble funding their businesses, from traditional finance sources. These entrepreneurs bring to the market innovative ideas and technical skills vital for firm success. Yet they may lack managerial advice and/or business expertise, which Venture capital (VC) firms are able to provide for them, along with funding. Nonetheless, not all VC-backed firms succeed. Therefore, an understanding of the determinants of success of these firms is crucial. This study contributes to the literature; by combining the characteristics of entrepreneurs and VC firms, and their relationship, to assess their impact on VC-backed firms’ performance. There is a sufficient amount of literature testing these determinants separately. However, studying them together as they co-exist in the market produces more reliable results. Additionally, emerging economies are still developing their VC markets, thus research on these markets is relatively recent. Hence, this study is timely and crucial, as it generate key insights to help leverage successful industries. This is achieved by combining two survey responses. One distributed to 14 VC firms in Egypt, and another to 79 of their portfolio firms. The research data is analysed using t-tests, ordinary least square regression and ordered probit regression. Supported by the Institutional Theory, the findings of this study emphasise the importance of entrepreneur networks in Egypt. As they have a positive and significant impact on performance of VC-backed firms. The resource-based capabilities of portfolio firms, matched to their firms’ strategies, have a significant impact on the performance of VC-backed firms. Finally, the VC-E relationship shows that contracts have a significant negative impact on VC- backed firms’ performance. However, when legal environment factors are considered, their impact becomes insignificant. Instead, the strength of the VC-E relationship has a positive impact on sales growth. Hence, trust is more crucial than contracts, in weak legal environments. This study provides recommendations to entrepreneurs, VCs and policy makers in Egypt.