As more and more start-ups are pursuing innovation on key & core technologies in China, their relationship with venture capital firms has become more complex. A team led by Professor Jiang Xiaohong from Fudan University School of Management analyzed 439 funds raised by 377 companies listed on the SSE Science and Technology Innovation Board, as well as all the invention patents involved, in hope of shedding light upon general rules of the matching process between sci-tech innovative enterprises and VCs.
The team discovered that technology proximity between the start-up and the venture capital firm is a significant factor behind successful fund-raising. Higher technical proximity between the two parties means that the VC is more capable of providing pertinent consulting, human resources, third-party services, etc., supervising the operation of the enterprise, as well as showing more tolerance towards temporary setbacks in its innovation, which all benefit the long-term development of the enterprise and a meaningful VC exit.
Meanwhile, Professor Jiang pointed out that it’s worth noting that statistics also show that the higher the technology proximity between the VC and the tech start-up, the greater the possibility for the VC to overestimate the enterprise value and eventually lose on a failed investment.
