The results of this research demonstrate that boards of directors in venture-capital backed companies are more involved in both strategy formation and evaluation than are boards where members do nor have large ownership stakes. These same results ave demonstrated even when industry, board size, level of diversification, and insider board representation are held constant. Agency theory and institutional theory are advanced as reasons for this higher level of involvement. Venture capitalists are generally seen as value-added investors who have played a significant role in the development of many entrepreneurial businesses (Bygrave and Timmons 1992). This success has lead students of industrial competitiveness like Thurow (1992) to argue that the venture capitalist should serve as an example for directors of all types of organizations. One of the most significant value-added activities of the venture capitalist is involvement with strategy (Fried and Hisrich 1995; MacMillan, Kulow, and Khoylian 1988; Sapienza 1989, Sapienza, Manigart, and Vermeir 1996; Rosenstein, Bruno, Bygrave, and Taylor 1993). Implicit in the writings extolling directors who act like venture capitalists (Porter 1992a, 1992b; Bhide 1994; Thurow 1992) is the belief that they will be more active than traditional board members. However, little empirical work has been done to directly compare the level of strategic involvement of the two types of boards. Building on the work of Judge and Zeithaml (1992), this study compares the level of board involvement with strategy by the boards of venture capital-backed companies with the boards of other types of organizations. After establishing different levels of involvement, it then examines why there is a difference. Finally, this study provides additional empirical evidence on the relationship between board involvement and performance (Zahra and Pearce 1989). (C) 1998 Elsevier Science Inc.
