Prior research examining whether venture capital firms (VCs) add value to the ventures in their portfolios by advising their new venture teams (NVTs) has led to inconclusive results. Whereas most prior studies have assumed that NVTs value VC assistance, this study tests for the possibility that they differentially value two different types of VC assistance - business management and operational. We collected data by surveying 837 firms identified in the Venture Capital Journal that had received financing from venture capital firms. Only firms that received first-round financing were included in our analysis, which reduced our sample size to 205 firms. Our central finding is that systematic differences exist among NVTs in their evaluation of learning assistance from VCs. Even though VCs can chose their own level of involvement with an NVT, successfully improving venture performance through nonfinancial assistance at least partially depends upon the extent to which the NVT values VC input. Our results indicate that NVTs with more industry experience and longer team tenure in the current venture are negatively related to both business management advice and operational assistance offered by their VCs. However, when an NVT has previously worked together and when its primary experience is from another industry, it tends to welcome business management advice from its VC. One interpretation of this finding is that an advanced level of operational specialization already exists in such a team, which reinforces established operating patterns. Changing established operating patterns could make it more costly to adopt VC input on operational issues. However, business management advice may be more welcome, because the NVT is still learning how to compete in a new industry. These findings add to the growing literature that suggests that VCs play a particularly important role in entrepreneurial ventures when they pursue the development of new technologies (Ehrlich et al. 1994; Sapienza 1992). However, business management advice is not highly valued by NVTs that pursue more technical innovations. These findings in combination with those of Sapienza and Amason (1993) suggest that conflict in the VC-NVT relationship may be the greatest when the parties attempt to resolve critical differences, which ironically appear to be the ones where the NVT could derive the greatest benefit from listening to its VC. Finally, current firm performance is not related to the NVT's evaluation of VC assistance. Although cross-sectional measures of performance have obvious limitations, particularly with new ventures, these results indicate that the NVT evaluation of VC assistance is not driven by short-term performance. Past research has shown that VCs vary widely in their preferred level of involvement with the managers of firms in their portfolio. Some VCs prefer a laissez-faire approach, whereas others think that they must be more involved if they are to ultimately receive high rewards. The central finding from this study is that significant differences exist among NVTs in their evaluation of business management and operational assistance. For VCs that are more involved, these findings suggest that the optimal level of involvement is also partially contingent upon the NVTs openness to learning. Ignoring the contingent nature of the VC-NVT relationship, VCs could reduce their influence as a tool to improve firm performance and to ensure the ultimate survival of the venture.
