Limitations of the Study

There are no studies without limitations. Some of the limitations of the present study and the implications of these limitations are discussed in this chapter.

Cross-sectional nature of the study. Even though this study combines both survey

data and secondary data collected at different times, the nature of the study is essentially cross sectional. This design limits the opportunities for claiming causalities in the identified relationships purely on the basis of empirical findings. However, the hypotheses were developed on the basis of received theories and empirical research, thus improving the validity of the results. Despite the simultaneous data collection for many of the variables, some of these variables are such that causalities are fairly clear (such as social interaction influencing knowledge acquisition and not vice versa).

Limited geographical focus. The present study focused on U.S. technology-based

new firms. This focus was chosen because of the small number of corporate venture capital backed ventures and the low availability of information on them elsewhere.

Focus on dyadic relationships. This study focused on the dyadic relationships

between the technology-based new firm and its most important corporate venture capital investor measured in terms of ownership. In reality, corporate venture capital backed technology-based new ventures often have multiple investors. However, this focus on a single relationship is justified by the lack of in-depth studies focusing on relationship qualities (Hansen et al. 1999, Yli-Renko 1999). Several authors have argued for the need to focus on the characteristics of relationships with key constituencies in order to gain a richer understanding of the factors influencing the

value and management of interorganizational relationships (Galunic & Moran 2000, Lane & Lubatkin 1998, Stuart 2000, Yli-Renko et al. 2001a).

Focus on one side of the dyad. In this study, the dyadic relationships were examined

only from the entrepreneur perspective. Simultaneous research of the relationships from both the entrepreneur and corporate investor perspectives would provide additional insights, or at least additional factors to be considered. However, the practical implementation of such a study would have been difficult or impossible because of the inherent reduction in the sample size and increase in time and costs (Mohr & Spekman 1994, Yli-Renko et al. 2001a). Providing validity for the measurement from one side of the dyad, Sapienza (1992) and Sapienza and Gupta (1994) demonstrated a very high similarity in answers regarding value-added provided by venture capitalists from both venture capitalists and entrepreneurs.

Use of primarily perceptual measures. One of the limitations of this study is that it

employs primarily perceptual measures. However, this strategy has been intentionally chosen in order to examine issues where objective measures are not available. The use of survey-based measures has recently been warranted (Das & Teng 2000:53). The reliability of perceptual measures in has been shown to be good in many of the studies examining analogous situations such as value-added in venture capital (Sapienza 1992, Sapienza & Gupta 1994), performance of joint ventures (Geringer & Hebert 1989, 1991, Lyles & Salk 1996), and performance in vertical supplier-customer relationships (Anderson & Narus 1990, Heide & John 1990, Mohr & Spekman 1994, Yli-Renko et

al. 2001a). The use of perceptual measures in many of the studies has been based on

the notion that success is determined, in part, by how well the partnership achieves the performance expectations set by the partners (Anderson & Narus 1990, Mohr & Spekman 1994).

Increasing the reliability and validity of the perceptual measures in the present study, the constructs have been operationalized using theoretically based and, in many cases, previously validated multi-item scales, and tested for inter-item reliability (Nunnally 1978), and convergence and divergence validity using confirmatory factor analysis. Furthermore, the reliabilities of the dependent variables were ensured by a follow-up survey for the original respondents with the results demonstrating good reliability (Carmines & Zeller 1979:37-40, Litwin1995:8-13, Nunnally 1978:233-236).

The use of perceptual measures has also clear benefits in research examining the performance implications of certain types of interorganizational relationships. Separating performance implications resulting from specific interorganizational relationships is difficult without primary data focusing on those relationships. Use of secondary data might be problematic because performance differences in cross- sectional studies are always subject to unobserved heterogeneity and selection bias. Unobserved heterogeneity refers to the potential unobserved factors influencing the performance differences between firms. Selection bias refers to the potential problem that higher potential ventures are likely to attract better partners. The use of primary

data focusing on the processes occurring in specific dyads is likely to suffer less from the above-mentioned problems.

Limited time frame of the study. The sample companies had all received corporate

venture capital funding during 1999-2000. Given the exceptional developments in the financial markets during recent years, there is always a concern for the generalizability of the results over other periods of time. Because of the nature of the research questions demanded for primary data, it was not possible to use a longitudinal setting based on archival data. The need to focus on recent investments was further determined by the relatively small number of corporate venture capital investments before the end of 1990’s. In this study, the reliability and the stability of the dependent variables were ensured by test - re-test procedure by sending a follow-up survey for the original respondents six months after the original survey (Carmines & Zeller 1979:37-40, Litwin1995:8-13, Nunnally 1978:233-236). This six-month period is important, because the amount of venture capital and corporate venture capital investments decreased dramatically during the first half of 2001. The results in the follow-up questions were strongly correlated with the original responses supporting the reliability and generalizability of the results over the specific period of time.