Data on the Deal Flow of Venture Capital Firms

5.1.2.1 Questionnaire as Data Collection Method

In order to match the results from the formal network analysis with the data on deal flow of VCs and to examine the potential connection between these two areas, a questionnaire has been used to gather data on the quantity and quality of deal flow. In an elaborate research on formal VCs, Vater (2002) analyzed the various steps of their value chain. Also covered in his study, although only as one element, is the deal flow. Vater also used a questionnaire,627 _{some questions of which served as basis for the questionnaire of the}

present study.

The foundation for the formulation of the questionnaire used in this study are the theoretical considerations that led to the research model explained in previous chapters as

625 _{Presented here is the matrix when exported back into Excel because in the UCINET 6 output log file,} the width of the columns is limited so that the labels of the columns cannot fully be read. When exported back into Excel, this problem does not exist, because the width of the columns can be adjusted. 626 _{Own illustration.}

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well as, as mentioned earlier, some of the questions used in the study of Vater (2002). Furthermore, the formulation of the questionnaire has been established based on a qualitative, preparatory study, which consisted of several conversations with scientists from the social network research field on the one hand side, and with managers of VCs on the other hand. Result of these conversations was the focusing and a further specification of several questions.

These questions have been arranged in a questionnaire and have been tested in a pretest with managers of five different VCs that are part of the network selected. They have been asked to complete the questionnaire and provide feedback with regard to various aspects. These aspects included the time need to complete the questionnaire, the understanding of the questions as well as their comprehensiveness, their clarity, and their unambiguousness. Also, they have been asked to give an assessment of the ability and willingness of venture capital managers to answer the questions. Result of the pretest were a number of adjustments and additions to the questions, for example regarding the categorization of the deal flow sources.628

Based on the qualitative preparatory study as well as based on the pretest, it could have been ensured that the formulation of the questions represent the content of the questions comprised in the questionnaire.

The questionnaire is made up of three parts: Part one consists of a short explanation, why and with which goal this study is being performed. This serves the purpose to provide the VCs with an introduction to the content and the background of the study. Also, some tips and details are provided with regard to the completion of the questionnaire. The time need has been determined in the pretest to be approximately 15-20 minutes. Also in part one, receiving the results of the study has been offered as reward for the participation in the study. Part two consists of questions regarding the deal flow of the VC, i.e., here, questions are being asked with respect to the quantity and quality of deal flow as well as the sources of deal flow. In part three, further, more general questions are being asked,

628 _{The feedback of the VCs was to further group the sources mentioned in the first version of the} questionnaire.

which serve as further variables,629 _{or to evaluate whether the VCs included in the}

network correspond to the goal of this study.630

5.1.2.2 Data Collection Process

The basis for the survey are those VCs, for which the selection procedure has been described in section 5.1.1.2. As described above, included in the network are 234 firms, which either have their headquarters in Germany or which have an office in Germany or had one during the time period from 1998-2005. Based on the feedback from the qualitative, preparatory study and the pretest, the following procedure for the data collection through the questionnaire has been followed:

In a fist step, relevant contact persons in each VC have been contacted with an email invitation to participate in the study. Attached to this email was the questionnaire as pdf document. Also in this email, a username and individual password for each person contacted were included, in order to offer the possibility to complete the questionnaire in an online version.631 The respondents were offered three options to return the questionnaire, i.e., by completing it online, by printing out the pdf-version and sending it back to the fax number of the author, or by sending it by standard mail to the chair of the university in Aachen.632 What had to be ensured was that the author could identify, from which VC the questionnaire was returned, in order to match the data from the questionnaire with the results from the formal network analysis. To let this not be a problem for the respondents to answer, it has been guaranteed in the questionnaire that, of course, neither the names of the person that completed the questionnaire is disclosed, nor is it discernible, which VC answered the questionnaire. Therefore, as has been explained

629 _{Such as several firm attributes used in the regression models, as will be explained further below.} 630 _{With the additional data, for example, it was possible to check whether the VCs focus on venture capital}

investments (recall that buyouts have been excluded).

631 _{The online version of the questionnaire was generated based on the internet platform provided by the} services of Globalpark. Globalpark is a professionally managed online survey service that offers students, chairs of universities, firms, and private individuals the possibility to generate a questionnaire online with the help of a tool provided on the platform. This tool is called 'OPST 4.0', which stands for Online Panel Site Tool. It offers comprehensive features for the generation, management, tracking, and analysis of online surveys. See www.globalpark.de or www.unipark.de.

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above, all VCs that are part of the network, have been assigned an identification number (VC#...), which is used consistently throughout the study.

In a second step, one week after the initial email invitation has been sent, a considerable amount of time has been invested to make telephone calls to the contact persons of the VCs that have received an email invitation.

As addressee of the invitation email only those persons have been selected, who seemed to be able to answer the questions properly. The selection has been made upon the position the persons hold in the respective firm, i.e., CEOs and managers have been selected, who hold a leading position within the firm. To identify the relevant contact persons, a considerable amount of time has been spent to search through several potential sources: One source were private contacts to venture capital managers, who could either serve as respondents themselves, or who could name a colleague within their firm that is an adequate respondent. A second source were the directories of the European Private Equity & Venture Capital Association (EVCA) and the BVK that are publicly available on the internet.633 In these directories, the member firms of the associations are listed, often together with the names of the leading managers or CEO(s). A third source was the VentureXpert database, which also provides contact information on people working in the VCs, together with information such as functions, email addresses, and telephone numbers. However, this information is only available for part of the firms considered in this study. A fourth source to identify the appropriate contact persons was an intensive research of the VCs' homepages. Most often, the firms provide the names, functions, email addresses, and sometimes also the direct telephone numbers of the managers.

Based on these sources, a comprehensive list of all 234 VCs with appropriate contact persons, telephone numbers, and email addresses has been generated. For a minor part of the 234 firms though, no contact person could be identified. In these cases, the email invitation has been sent to the general email address of the firm.634

633 _{See www.evca.com and www.bvk-ev.de.}

634 _{This could be done because part of the data collection process was to make telephone calls to the firms} if no questionnaire was returned after one week. In the cases, in which the email invitation has been sent to the general email address of the firm, in the first telephone call it has been asked for an appropriate contact person and an invitation email was sent again directly to this person.

As stated above, after the initial email invitation, the contact persons of those firms that have not reacted to the email, have been called by telephone in order to check whether they are interested in the study and will participate or not.

Data collection via the questionnaire has been performed between March and May 2006. Out of the 234 firms, to 23 firms no contact could be established because there was neither a reaction to the initial email, nor were multiple telephone calls answered. Consequently, 211 VCs remained that have been contacted within this empirical research.From these 211 firms, 127 questionnaires have been returned, of which 84 (66%) were completed online, 36 (28%) were sent back by telefax, and 7 (6%) were returned by standard mail. The 'gross' return rate is therefore 60.2%, which is a remarkable result for an empirical research in the field of venture capital. To a large extent, this high return rate could be realized by the extensive effort spent on telephone calls to the venture capital managers.635

Since it was important for the empirical analyses that the questionnaires were filled out as completely as possible, 2 out of the 127 received questionnaires had to be eliminated, so that 125 questionnaires remained.

5.2 Statistics in Social Network Analysis

In this section, first a few introductory comments have to be made on how statistical methods are applied to the research field of social network analysis. Then, a brief overview of the goals of analysis of these methods is presented. Finally, multivariate regression analysis as the method used in this study will be explained in more detail.