Institutional Change and the Venture Capital Development Process: Evidence from Emerging Economies

Abstract

We investigate the impact of formal institutional change on the venture capital (VC) development process. In particular, this study contrasts VC development processes taking place in stable formal institutional environments with those in volatile environments. We show that formal institutional change—both improvement and decline—facilitates the VC development process. As institutions change, public-private cooperation is important in overcoming weak enabling conditions in the VC development process. Private VC fund managers can facilitate this cooperation by viewing public investors as part of the solution, remaining vigilant for state-dominated efforts at VC development and, where neither are possible, relocating their expertise to similar institutional contexts. Employing longitudinal interview and archival data from four emerging economies with a range of institutional change and quality levels, Botswana, Indonesia, Pakistan, and South Africa, we provide empirical support for our propositions.