Investor Influence on Portfolio Company Growth and Development Strategy

Abstract

The way in which investments are structured to provide appropriate incentives and to enable effective monitoring and control is the key feature of private equity and venture finance. However, the extent and method of involvement of private equity firms in portfolio companies are variable. When these firms do involve themselves, they do so mainly through influencing company strategy and through using their knowledge and contacts to introduce portfolio companies to networks of suppliers and customers, professionals, and alternative sources of finance. Private equity firms also focus on the quality of management and help professionalize the human resource base. Using a case study approach, the author empirically investigates these ideas, especially how investors, through a network of contacts, affect portfolio company growth and development strategy.