1042-2587

2006 by
Baylor University

E T&P

Venture Capital in
Emerging Economies:
Networks and
Institutional Change
David Ahlstrom
Garry D. Bruton

Emerging economies are characterized by fundamental and comprehensive institutional

transformations as their economies begin to mature. How venture capitalist functions in
environments that differ so fundamentally from those of the mature markets where venture
capital was initially developed has only begun to be addressed. This article builds a framework to further the understanding of venture capital practice in emerging markets. Specific
attention is focused on the impact of networks in the model, in particular, how networks and
other informal institutions can act to supplement or replace formal institutions when they are
weak. The article goes on to examine what the implications are for venture capital and the
role of informal institutions in emerging economies as formal institutions become more
established. The research and resulting model is grounded in 65 semistructured interviews
with venture capitalists in emerging economies around East Asia. This article contributes to
the literature by drawing attention to the impact of networks and changing institutional
environments on venture capital during different phases of an economic transition process
in emerging economies. The findings have implications for understanding institutional
impact on venture capital activity as well as entrepreneurs and entrepreneurial ventures that
seek venture capital financing in emerging economies.

Introduction
High-growth potential businesses have typically relied on financing from sources
other than traditional lenders such as banks during their early growth phases. In the more
developed economies of the United Kingdom, Canada, and the United States, venture
capitalists have filled this gap by providing capital to early stage ventures with good
growth potential (Wright & Robbie, 1998). The availability of such capital has helped to
promote the emergence of numerous high-growth firms in the United Kingdom, United
States, and several other developed economies. This has led many to conclude that venture
capital is a crucial factor in fostering a regions economic growth (Jeng & Wells, 2000;
Saxenian, 1994). More recently, venture capital has started to reach into emerging economies have encouraged the establishment of their own venture capital industries (Bruton,

Please send correspondence to: David Ahlstrom, e-mail: ahlstrom@baf.msmail.cuhk.edu.hk at The Chinese
University of Hong Kong, Department of Management, Shatin, N.T., Hong Kong.

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Ahlstrom, & Yeh, 2004; Lockett & Wright, 2002). This has proved to be a challenge as
many emerging economies are undergoing significant economic transition and offer little
protection for either investors or private property (Peng, 2001). Such an ambiguous
environment adds to the already difficult task faced by venture capitalists in the selection
of firms to fund and monitoring those investments effectively (Bruton & Ahlstrom, 2003;
Pruthi, Wright, & Lockett, 2003).
Venture capitalists count on a stable institutional regime with a predictable rule of law
and enforcement regime to facilitate and safeguard their investments (Cardis, Kirschner,
Richelson, Kirschner, & Richelson, 2001). In addition to legal stability, venture capitalists
look for environments with efficient markets for corporate control and capital, which
readily allow exit from ventures as well as systems with minimal corruption (Wright &
Robbie, 1998). This institutional stability and predictability reduces uncertainty and risk,
and enhances the likelihood of success in new ventures.
Institutional stability is largely unknown in most emerging economies. Instead,
emerging economies such as those of China and Russia are known for their unpredictability, volatility, and uncodified institutional environments (Meyer, 2001; Peng, 2000).
Startup firms in emerging economies share the liability of newness that all new firms have
(Stinchcombe, 1965) but have the added risk of being domiciled in environments that are
unpredictable and volatile, where property rights are uncertain, and markets for goods and
capital are in a very nascent stage (Bruton & Ahlstrom, 2003; Lockett & Wright, 2002).
How do venture capitalists make and manage investments under such unsettled
conditions with little protection of private property? Much past research emphasizes
venture investments made in relatively stable institutional regimes (e.g. Busenitz, Fiet, &
Moesel, 2005). Thus, much is not known about how venture capital functions in environments lacking in many formal institutions that venture capitalists expect.
While important to venture capitalists everywhere, network connections among
entrepreneurs, venture capitalists, and enterprises may play a greater role in helping
venture capitalists navigate the challenging environment in emerging economies. They
do this by partially substituting for weaker formal institutions such as the market for
corporate control and the rule of law (Butler, Brown, & Chamornmarn, 2003; Peng,
2003; Hoang & Antoncic, 2003) and offering some protection from government interference (Henisz, 2000, 2003). Previous empirical evidence has suggested the importance
of networks in East Asia for entrepreneurship as a whole (Butler et al., 2003). There is
also research on venture capital that considers, among other things, the function of
networks in emerging economies in East Asia (Bruton, Ahlstrom, & Singh, 2002; Bruton
et al., 2004; Bruton, Dattani, Fung, Chow, & Ahlstrom, 1999; Lockett, Wright, Sapienza,
& Pruthi, 2002), India (Wright, Lockett, & Pruthi, 2002), and China (e.g., Ahlstrom,
Bruton, & Chan, 2000; Bruton & Ahlstrom, 2003). The present study expands on that
existing literature and suggests that venture capital can still function in spite of a lack of
formal institutions such as laws, regulations and enforcement. It also implies that social
network ties, including those of venture capitalists, can help substitute for the formal
institutions present in the Anglo-American system and take on more importance in the
emerging market setting.
This article examines the venture capital function in a cross-section of East Asian
economies in seeking to understand how venture capitalists manage the unpredictability
inherent in emerging economies. Although not identical, there are a number of similarities
among the emerging economies of East Asia (Burton, Butler, & Mowday, 2003), particularly in terms of their nascent institutional development and dependence on informal
institutions (Bruton et al., 2002). We pay particular attention to how venture capitalists use
networks to substitute for the lack of formal institutions such as the rule of law, accounting
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standards, and an enforcement regime. The focus is on how institutions impact venture
capitalist actions in emergent markets.
This article also examines the controversy on whether the relational content of venture
capitalists transaction structures will decrease as the institutional environment becomes
more developed and formalized (Guthrie, 2002; Shane & Cable, 2002), or remain highly
socialized (Wank, 2002). This article thus investigates the role that networks play in
venture capital in emerging economies and how venture capitalists expect this to change
with continuing economic development. These findings have implications not only for
venture capital and how it may differ in emerging markets today, but also for the broader
issue of how venture capital and other entrepreneurial activities will be impacted in the
future as institutions become more formalized in emerging markets.
To accomplish this, we first examine institutional theory as it relates to networks and
venture capital in emerging markets. Second, the data gathering and analysis employing
a grounded theory approach is described. The article will then examine the specific impact
of the institutional environment present in certain emerging economies and how venture
capitalists manage this inherent unpredictability often through the use of social networks.
Finally, implications for theory, practice, and future research are discussed.

Need for New Theoretical Perspectives

The past understanding of the venture captial process was built primarily on agency
theory, with some input from stewardship theory. There are, however, increasing questions
about the ability of these theories to provide a full theoretical base for understanding
venture capital and its application across a range of environments (Ahlstrom et al., 2000;
Arthurs & Busenitz, 2003). While providing some insight, these theories do not fully
represent the social nature of venture capital, particularly in settings outside of the more
developed economies (Bruton et al., 2002; Shane & Cable, 2002).
The emphasis of agency and stewardship foundations and lack of focus on networks
in venture capital stands in contrast to their application to the entrepreneurship domain
(Hoang & Antoncic, 2003). Some early work by Bygrave (1987, 1988) proposed that
networks were important for U.S. venture capitalists. Recent resesarch by Shane and
Cable (2002) and Stuart, Hoang, and Hybels (1999) supported this view by examining
venture-funded entrepreneurs using samples of large numbers of venture capital-backed
firms and a variety of other companies. Additionally, fields such as sociology (Sorenson
& Stuart, 2001) and geography (Powell, Koput, Bowie, & Smith-Doerrs, 2002) have
addressed the role of networks in venture capital and attest to their importance. Overall,
although there is a wide acknowledgement that networks can have an impact on venture
capital financing even in mature markets, the reliance on agency and stewartship theories
has not encouraged the specific examination of such networks in different venture capital
settings.

Networks and Institutions

While agency and stewardship theory do not emphasize the role of networks in
venture capital, there are other theoretical foundations that can be used to examine the
domain which add to the insight about venture capital activity in emerging markets.
Institutional theory specifically adds social and cultural elements that help provide a more
socialized explanation about how networks in an institutional context impact the function
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of venture capital (Scott, 2002). Institutions are conceptualized as the rules of the game
in a society (North, 1990). They are subtle but pervasive, and strongly influence the
goals, and beliefs of individuals, groups and organizations (North, 1990; Scott, 2002).
Scott (2002), building on prior research efforts (DiMaggio & Powell, 1991; North,
1990), more finely categorized formal and informal institutions into normative, regulatory,
and cognitive groupings. The most formal are the regulatory institutions. These represent
the standards provided by laws and other sanctions. Normative institutions tend to be less
formal, and they define the roles or actions that are expected of individuals. Normative
institutions often manifest through accepted authority systems such as accounting or
medical professional societies. Sometimes they are codified; other times they are understood practices of a profession or work function. Finally, cultural-cognitive institutions
represent the most informal, taken-for-granted rules and beliefs that are established among
individuals through social interactions among various participants and guide behavior.
A principal means by which cultural-cognitive and less formal normative institutions
propagate and influence a society is through a communitys culture (Jepperson, 1991;
Scott, 2002).
The organizing scheme of institutions proposed by Scott (2002) of regulatory, normative, and cultural-cognitive institutional pillars is not without controversy (e.g., Hirsch
& Lounsbury, 1997). However, it has been widely used and has proved helpful for
analytical purposes and will be used here also. Additionally, the conceptualization of
institutions as formal or informal is also useful for describing environmental settings and
discussing differing institutional effects and is employed here.
In venture capital, it is thought that certain institutions common to the industry will
lead to a general uniformity in venture capitalist behavior (Fried & Hisrich, 1994).
Institutions have an impact on the formation of goals and the processes of venture capital
firms (Wright, Thompson, & Robbie, 1992). However, as we begin to examine venture
capital, there would appear to be a more finely grained set of institutions that need to be
considered directly and from the perspective of very different institutional regimes.
The reason for this is that organizations are embedded not only in the institutional
arrangement in their industry but also in country-specific institutional settings (Busenitz,
Gomez, & Spencer, 2000). The institutional differences in countries extend beyond basic
differences in culture to fundamental elements of a nations laws and regulations, enforcement, business norms, and commercial traditions (Kostova, 1997; Orru, Biggart, &
Hamilton, 1991). Institutions are typically situation specific; therefore institutional characteristics of a country should be evaluated with regard to a specific phenomenon rather
than in terms of general arrangements (Busenitz et al., 2000; Orru et al., 1991).
Recent empirical evidence demonstrates that both organizational practices and routines (Biggart & Guillen, 1999), and strategic choices (Hitt, Ahlstrom, Dacin, Levitas,
& Svobodina, 2004) are influenced by institutional forces in the environment. Thus, it
follows that venture capital is also likely to be influenced by the local institutional
environment. If institutional differences in emerging economies mean that strategic
decisions operate differently, then traditional venture capital mechanisms may become
difficult to implement directly without some modification (Bruton & Ahlstrom, 2003).
This can also lead to differences in the function and use of networks in emerging
markets.

Emerging Economies and Institutions

Institutional theory has much to say about managing in emerging economies (Henisz,
2003; Hoskisson, Eden, Lau, & Wright, 2000; Peng, 2002, 2003). Emerging economies
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are rapid-growth countries that are reforming their economies to increase the number of
transactions governed by market forces. Moreover, institutional change in emerging
economies differs from what one might expect in the West (Newman, 2000). Yet there is
a lack of understanding of how firms should respond to these differing institutional
environments. Particularly, it is unclear how firms would respond to those environments undergoing both internal and external reform, with a less codified institutional
environment.
There is some evidence that the operation of venture capital in emerging markets
shares some features with that in the more developed markets of the West, but that there
are also substantial differences (e.g., Bruton & Ahlstrom, 2003; Bruton et al., 2002;
Bruton et al., 2004). Previous studies have examined specific countries such as China
(Bruton & Ahlstrom, 2003) or Singapore (Bruton et al., 2002). These studies have found
that while the model of venture capital in developed markets has relevance to the practice
of venture capital in emerging markets, little is known about how these models require
change for emerging markets.

Emerging Economies and Networks

Because of the paucity of formal institutions in emerging markets, networks, though
important to venture capital anywhere, take on increasing importance (Chen, 2001;
Hoang & Antoncic, 2003). In large part, this is because the networks become a valued
tool to overcome the lack of other institutional structures (Peng, 2000). In an emerging
economy where there is an environment with few enforceable accounting standards or
legal recourse, if something is not as promised, individuals rely on the interconnection
of individuals in networks and alliances to negotiate contracts (Meyer, 2001). Additionally, in such settings, since information dispersion is so inefficient and corruption is
likely to be more prevalent, network connections can be more valuable to overcome
such settings.
Some past research has suggested that networks play an important role in venture
capital in emerging markets. For example, Batjargal and Liu (2004) and Bruton and
Ahlstrom (2003) suggest that networks play an important part in Chinas venture capital
industry both to help gather information and to substitute for key formal institutions such
as the rule of law. The exact nature of these networks and how they may change in
response to institutions becoming more stable, with added regulations becoming more
predictable, the rule of law more reliable, and corruption lessened, has not been addressed.

Methods
This research will develop a model to explain the function of venture capital in
emerging economies with a particular focus on networks. The model will also pay
attention to changes over time in the interactions in business and how that may impact
networks. This model is founded on the well-supported assumption that emerging economies tend to have less formal institutional structures and many institutional differences
from those of the more developed economies (Peng, 2000). This can create constraints as
well as some opportunities for venture capitalists operating in those environments (Bruton
& Ahlstrom, 2003).
However, the model will also consider that as regulatory institutions become more
established, the firms reported performance is more likely to be reflective of its actual
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performance, because legal recourse is open to investors if the information they receive is
not accurate or other financial shenanigans occur. In addition, official corruption in such
settings becomes more addressable through legal protections. Thus, it is possible that there
is a longitudinal process in emerging markets to move from a relationship-based transaction structure that requires a network-centered strategy to a rule-based, impersonal
exchange system of venture capital (Peng, 2003). This suggests that venture captial in
emerging markets will migrate from being network centered to one that is more market
centered over time. Thus, in addition to addressing potential change in venture capital
settings, this model also identifies the critical points of transition and predicts strategic
choices for venture capitalists that must be made differently at these transition points
based on the institutional setting.
The model will be based on a grounded theory approach to data gathering to examine
institutional effects on venture capital in emerging markets. Glaser and Strauss (1967)
were the first to develop grounded theory, while subsequent work by Strauss (1987) and
Strauss and Corbin (1990) has further systematized and widened its application. In
grounded theory, extensive cases and qualitative information are purposively gathered so
that patterns of behavior can be determined. Although grounded theory has been used
regularly in sociology and anthropology, it has only recently been applied in organizational research (Lee, 1999).

Research Design
The foci of interest are how venture capitalists manage the unpredictability inherent
in emerging economies due to their underdeveloped institutional environments, with
particular attention given to their network association, whether that be with other venture
capitalist, entrepreneurs, or others in the environment. To explore this issue, multiple
sources of data, including interviews with venture capitalists, were used. Other sources of
data, including archival material about the venture capital firms and the venture capital
industry in East Asia, as well as published stories about the venture capital firms and the
firms they funded, were also gathered. The research also involved multiple researchers to
ensure divergent perspectives (Eisenhardt, 1989).
A grounded theory approach to data gathering and analysis can be aided through the
a priori definition of certain baseline concepts in the study (Strauss & Corbin, 1990). As
the phenomenon under study is complex, exploratory in nature, and represents a confluence of factors, qualitative data with content analysis proved to be the best approach to
develop a model of venture capital in East Asia (Lee, 1999). Yet the terms qualitative data,
interviews and ethnographies, and case studies are often confused. Qualitative data are a
type of evidence, whereas interviews and ethnographies are data collection methods, and
case studies are a type of research strategy (Yin, 2003). Case studies are appropriate to
examine: (1) contemporary or ongoing phenomena not divorced from its real-life context;
(2) phenomena that are systemic in nature, with a number of forces acting upon the system
simultaneously; (3) phenomena that are contextualized such that it is difficult to separate
the phenomena from their context, as can be done in an experiment (Yin, 2003; Tsoukas,
1989). The still novel nature of venture capital and institutional influences in emerging
markets is consistent with the exploratory nature of case-study investigations, facilitated
through interview data collection, coupled with content analysis of similar and dissenting
answers (Yin, 2003).
The venture capitalists to be included in the sample were identified from Guide to
Venture Capital in Asia (2003). The authors conducted a total of 65 semi-structured,
face-to-face in-depth interviews with 60 leading venture capital fund managers and five
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government officials in Hong Kong, Taiwan, China, Singapore, Taiwan, and South Korea
from 1999 to 2003.1 Such interviews were employed since the sensitive nature of the data
reduced the likelihood that any method other than face-to-face interviews would be
responded to in emerging markets. Interviews were used in this research for four reasons.
First, the venture capitalists often preferred face-to-face interviews to questionnaires.
Second, in East Asia it is important to establish a relationship with respondents in order
to receive an accurate response, which also militates against using questionnaires. Third,
interviews are less structured than are questionnaires as they allow the spontaneous
discussion of problems and solutions and for follow-up questions on a topic with the
development of recommendations (Lee, 1999). Interviews also permit iteration and
follow-up as required in grounded theory. Finally, as this is a new area of study and
research site, the benefit of conducting in-depth interviews to develop a theoretical
understanding of such a domain is well established (Eisenhardt, 1989; Daft & Lewin,
1990).
The interviews lasted from one hour to two and half hours. We followed a purposive
sampling approach to the sample selection and subsequent follow-up (Lincoln & Guba,
1985). Purposive sampling calls for selecting participants with specific characteristics
(Lincoln & Guba, 1985). In this case, the effort was made to ensure that there was a range
of firm sizes (large and small venture capital firms). Additionally, the authors ensured that
there was diversity in the origin of the firms (locally founded as well as international
venture capital firms). This helped to ensure that a range of investment focus by the
venture capital firms (early and later stage investments) would be included in the
database.
The questions asked of the top management team of each firm were semi-structured
in that they provided some direction to the respondent but permitted additional open
response beyond the basic question. The questions addressed primary venture capital
activities and how they were actually undertaken. Top managers of each venture capital
firm were asked similar questions focusing on the nature of the firms investment approach
and participation in monitoring and managing funded firms. However, as the respondents
raised issues that provided rich insights, the discussion would then further pursue those
particular issues in depth. Other experts in the given field in which the venture capital
firms competed were also interviewed. Additionally, printed material prepared by the
venture capital firms and articles about the firm were also gathered and compared with the
interviews.
The semi-structured interviews were conducted, transcribed, and coded in a manner
consistent with a grounded theory research design (Glaser & Strauss, 1967; Strauss &
Corbin, 1990). Using this research design, researchers seek to examine a topic and build
theory or new variable relationships through an iterative process of comparing data with
a limited baseline framework or to completely new theory as it emerges from the data
(Strauss & Corbin, 1990). After interview transcripts and key points were coded (Strauss
& Corbin, 1990; Miles & Huberman, 1994, chap. 4), those codes were entered manually
into an open-coded database. The inventory of open codes (Strauss & Corbin, 1990) was
based on the lines of inquiry established through exploratory interviews and categories
suggested by institutional and network theory.
1. Sixty-five venture capitalists from 62 firms were interviewed in the emerging economies of East Asia.
These included nine in Thailand, twelve in Taiwan, fourteen in Singapore, ten in Korea, two in China, and
eighteen in Hong Kong. Most of the venture capitalists located in Hong Kong, Singapore, and Taiwan invested
around the region and not only in their own economies. The Hong Kong and Taiwan venture capitalists in
particular were active investors in mainland China.

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Once the core categories of venture capital activity had been identified and discussed,
and elements of their implementation examined, comparison charts were developed for
each category. The coding database was revised and the codes were further refined to
illustrate venture capital action, methods of implementation (e.g., of entrepreneurial firm
selection), and differences from the developed market model. Possible causal relationships between variables suggested by institutional and network theories were noted on
memos, along with alternative explanations. These were also suggested to venture capitalists in subsequent interviews, as is common in a grounded theory approach to the data.
Finally, once the categories of venture capitalist activity and their specific actions had
reached saturation, that is, after about 30 interviews, and no new concepts were emerging
(though sometimes new stories and implementation ideas were), the resulting explanation
could be said to account for most of the reported behavior in the sample. Specifically, the
various authors initially identified the key terms and patterns in the data independently
along the baseline dimensions of deal selection, due diligence, monitoring, value added to
funded firms, and exit as well as four concepts that emerged from the data and repeated
often enough to warrant discussion. Then, the authors did comparisons on those patterns,
with a focus on the similarities and differences identified by the various interview subjects. A graduate student that was familiar with the categories of venture capital activity
but was not part of the study aided in the identification of the patterns and any additional
concepts. Reliability among the three coders (two authors and one graduate student) on
identifying categories was nearly 90%. The model that emerged essentially explores what
venture capitalists do in emerging markets under conditions of a weaker rule of law, a
shorter history of venture capital-funded entrepreneurial firms and the limited legitimacy
of private enterprise. The model also examines how venture capitalists respond to these
differences from the more developed economies through the specific implementation of
these actions and why they do so. The categories of venture capital actions, key concepts,
and areas of agreement and two areas of disagreement among the interview subjects are
noted and discussed. Short quotes from interview respondents are also included.

Results
The results from the interviews provide two broad outcomes. First, as expected, the
developed economy model of venture capital as commonly practiced in the United States
and United Kingdom and that of the East Asian emerging markets studied have both
similarities and differences. They are similar in that the steps taken by venture capitalists
in both regions are the same. The four major venture capital activities of firm selection and
due diligence, structuring and monitoring the deal, value-added, and exit were emphasized
by all venture capitalists in the sample. In terms of differences, the venture capitalists
summarized these by stating that although the goals were fundamentally the same (return
for their investors and the building of good companies), the path to achieving those goals
differed somewhat in emerging East Asia. For example, the selection of firms to fund
differed somewhat, and venture capital networks were particularly crucial. Venture capitalists talked about the need to know (or know of) the friends and family of the entrepreneur as part of the selection process. This would be added insurance that the entrepreneur
could not easily walk off with the venture capital firms cash (The Economist, 2004a). This
particular application of the venture capitalists network was quite familiar to venture
capitalists in East Asia but would probably not be common to venture capitalists in the
United States. Several other implementation differences emerged. Specifically, venture
capitalists in our sample used networks to replace some of the formal institutions missing
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in the emerging markets. Second, the results also suggest ways in which the practice of
venture capital appears to be influenced by changing institutions.
We will first explore venture capitalist: selection of firms to fund, structuring the
relationship and monitoring the firm, value added, and exit from the venture, based on
differing institutions in the two regions. The results, organized along the three main pillars
of institutional theory, are summarized in Table 1.

Selection of Firms to Fund in Emerging Markets

Two of the key elements of picking which firms to fund in the Anglo-American model
are due diligence (Fried & Hisrich, 1994) and knowing of the entrepreneur (Bruton, Fried,
& Hisrich, 1998). Venture capitalists operate differently in emerging markets. The relative
absence of formal institutions such as laws and accounting standards results in a venture
capitalist having difficulty knowing whether proposed ventures are what they seem to be
and not merely a vehicle for funneling money to an overseas account (The Economist,
2004b). Given that emerging-market venture capitalists in our sample repeatedly mentioned the importance (and difficulty) of finding competent and backable managers, it is
no surprise that they relied heavily on close connections with entrepreneurs whom they
knew to ensure they had the necessary capabilities.
This reliance on relationships and their networks helps to overcome any shortcomings
that result from the absence of formal institutions in the emerging economy. This manifests in two main ways. First, the initial screening of ventures to fund appears less
dependent on industry criteria and more on the entrepreneur associated with the venture,
and with whom that entrepreneur was in turn connected. One influential venture capitalist
in Southeast Asia observed:
For example, I love to do deals with people I have done deals with before. So you will
find that although we might have done sixty or seventy transactions over the years,
they have not been done with sixty or seventy different entrepreneurs, they have been
done with twenty-five to thirty entrepreneurs. Many of them are repeat deals. The
biggest risk in our business . . . is the people risk and when you do a repeat thing with
the guy you wanted to have a good experience with, you have eliminated what I
consider the biggest risk in the businessthe people risk . . . I know that the chance
that this guy would rip me off and cheat me is probably less than [someone I do not
know] . . . because this guy has history with me.
The focus on relationships in more developed markets such as that of the U.S. is also
present to some degree (Shane & Cable, 2002), but venture capitalists that have worked in
both East Asia and the United States reported that the reliance on networks in emerging
markets appears to take a more central role than in developed markets due to the lack of
institutional supports in the former. Thus, rather than being one of multiple criteria that aid
in selecting which ventures to fund, who the entrepreneur is and their potential affiliation
with a network of known individuals is a hurdle that all ventures must cross before being
considered or selected for funding in emerging markets.
The importance of networks manifests itself in a second key way. Not only is the
entrepreneurs history with or connections to the venture capitalist important, but also the
entrepreneurs connection to key government officials. Several venture capitalists in our
study mentioned the importance of the entrepreneur having government connections. One
venture capitalist from a mainland China venture capital firm remarked:
On some deals, connections with [various levels of ] government are crucial. The
entrepreneur may need to get land, or permits to sell certain items, or a favorable
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Strong emphasis on investor and

shareholder rights. Previous
relationship can be important
under some conditions.
Undersocialized view of venture
investing is commonly accepted
(Arthurs & Busenitz, 2003).

Cultural-cognitive

Normative

Strong legal framework,

transparent, and well-regulated
financial markets and effective
corporate governance system;
with strong protection for
institutional investors and
minority shareholders (Fried &
Hisrich, 1995; Sapienza &
Gupta, 1994).
Professional standards play an
important role in confining
business activities (Fried &
Hisrich, 1994).

Anglo-American
system

Regulatory

Institutions

Venture capitalists in our study pointed out that the legal systems around East
Asia, though improving, were still lacking in proper protection for investors.
Several venture capitalists pointed out that East Asian courts were not a
remedy open to them. This was true not only for China, where the legal
system is still in a nascent stage, but also for Hong Kong and Singapore,
where British Common Law is still prevalent. The reason given is that it is
better to solve contractual conflicts and other problems outside of the courts
to preserve ones connections and reputation, particularly among the overseas
Chinese business community around the region.
There was general agreement that the professional standards of
Anglo-American venture capitalists were an ideal to be pursued and were
reasonably upheld in East Asia. Venture capitalists and government officials
in the East Asian economies both encouraged venture capital training
consistent with the Anglo-American model. Some venture capitalists
dissented, however, stating that the realities of emerging economies in East
Asia required that venture capitalists themselves behave differently. For
example, they pointed out that it was important for them to monitor firms
very closely and place their own middle managers (not just top managers) in
the larger investments.
Most venture capitalists in the study agreed that they try to get to know the
principals of funded firms well as part of due diligence process. One venture
capitalist added that guanxi was less helpful in securing funding, but it was a
necessary part of monitoring the firm. For example, many venture capitalists
even emphasized the importance of knowing who the friends and family of
the entrepreneur are so as to provide an extra measure of monitoring.
Government officials pointed out that guanxi was less important in securing
funding as the business models needed to be attractive, but they did not
comment on the monitoring process. Venture capitalists added that knowing
government officials superiors in China can prove crucial at times.

Legal system and corporate governance mechanisms are

relatively weak, but seem to be moving toward
Anglo-American standards, although at differing rates.
Reporting standards tend to be more lax, cross holdings
are present, more insider control of information, and
flexibility of insider action based on financials.

Strong influence of overseas Chinese commercial culture in

much of emerging East Asia. Cultural-cognitive
institutional aspects such as the use and maintenance of
guanxi networks are very important to venture investing.
Maintaining harmony within and between organizations
coupled with the lack of disclosure of information takes
primacy over a sense of obligation to investors. That
means it may be difficult for weaker managers or
suppliers to be replaced.

Professional standards play an important role in defining

venture capital practice. Venture capital associations hold
training and encourage certain behaviors. Similar
educational training as U.S. venture capitalists. Venture
capitalists reported that they are sometimes bringing new
norms of behavior to the managers of funded firms by
insisting on professional standards such as that certain
accounting practices be upheld, regardless of local laws
and custom.

Networks and their application in

emerging-economy venture capital

East Asian emerging

economies

Institutions and Networks in Venture Capital in the Emerging Economies of East Asia

Table 1

ruling from a government official. In the legal systems around Asia, government
bureaucrats tend to have more power than in the U.S. In the U.S. system, the courts
make a lot of decisions. Around Greater China, it is the government officialsand
they are usually local officialsthat are most influential . . . and even for certain key
firm functions such as personnel management, venture capitalists and the funded firm
must carefully consider the government factor.
Although emerging markets are commonly thought to be all about who you know,
some limits to the use of connections and networks also emerged. Most venture capitalists
in the study were quick to point out, for example, that although connections with government officials and the military (in certain countries such as Thailand or China) were
important, they were quite hesitant to structure a whole deal around someone in political
office. A Singapore venture capitalist summed up venture capitalists concerns regarding
politically connected deals:
[W]e try not to do deals that are politically centered . . . The minute someone comes
with a deal that says he has a special angle because in China my brother-in-law is the
mayor of this province, I just get a glaze over my eyes . . . As long as your political
mentor remains in that position, sure, its probably a good thing to have him there but
the problem is, in politics, people dont last forever and the minute the political
mentor loses his position, its not that you just lose your political mentor, but you
actually inherit all of his or her enemies.
The venture capitalists felt that it is important to have connections to open doors,
obtain information, locate markets, and better secure the investment, but they must be
acquired and used judiciously, particularly with regard to government or military connections. Thus, although networks are important and can be a substitute for many missing
formal institutions, there are limits to what they can do.

Structuring and Monitoring

Structuring and monitoring the funded firm is also impacted by the differing institutional regimes in emerging markets. In developed markets such as those of the United
States and United Kingdom, legal institutions such as codified laws and regulations, the
courts, and the enforcement regime create a powerful role for the board of directors of a
firm (Sapienza, 1992). This is utilized by the venture capitalist when funding the firm to
ensure that they have a significant role in the board of the firm. The venture capitalist also
typically places strong covenants in the funding agreement that limit the actions of
entrepreneurs (Fried & Hisrich, 1995). For example, typically removing key officers in the
firm may be limited without approval of the board. These actions will normally be
enforced without incident.
By contrast, in emerging economies, legal institutions are generally flimsy. To illustrate, the role of the board of directors and corporate governance are weak (Young, Peng,
Ahlstrom, & Bruton, 2002) and are not a robust way to monitor firms in much of East Asia
(Low, 2002; Young, Ahlstrom, & Bruton, 2004). Several venture capitalists stated that it
is not uncommon for firms to develop and actually circulate meeting minutes as if the
board had met when in fact no meeting had occurred. Others added that firms would hold
their board meetings at home in the evening and would not give the venture capitalist
investor enough notice to attend.
Given the limited corporate governance mechanisms, venture capitalists must often
employ a network of contacts to monitor the firm properly. For example, a venture
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309

capitalist may have weak ties to a previously funded firm. However, if the venture
capitalist knows that the given individual is part of a network he or she can hire someone
from that network to assist in the monitoring process. Thus, the funded firm may not be
worried about being fully forthcoming with the venture capitalists, but they would not
want to destroy their relationships with the given network by not being fully forthcoming
with them. Therefore, the monitoring process may be easier for the individual or firm hired
than it would be for the venture capitalist.
Although boards are not very powerful in the emerging markets of East Asia, that does
not mean that venture capitalists do not use the board. Venture capitalists in our study
indicated that they usually secure one to two board seats on funded firms. Several venture
capitalists in the sample also mentioned that they tried to place someone from their
networks on boards, both for information and to influence decisions.
Through these sources the venture capitalist were able to monitor their investments
reasonably effectively, although it took more time and effort than in the West. The need for
such monitoring, however, is greater in East Asia due to problems with the rule of law. As
a result, venture capitalists report that they must watch over the firm more carefully,
sometimes employing junior staff to do this. One Singapore venture capitalist with
extensive experience around East Asia and in mainland China recalled:
If you are not quite vigilant, your assets will walk out the door. We had a whole
firm full of equipment vanish on us. In another firm we were working with, the
entrepreneur absconded with all the money, the saleable assets, and even the
company car. One manager we know of went further than that; he secretly sold all
of a funded joint ventureeven the part that the local investors did not ownto a
government department [in China]. In another funded venture, the guy borrowed
money under the company namea lot of itand disappeared. He left everything
behind, including his family and slipped out of the country completely. We have
learned you must have people on the ground near your investment in East Asia,
especially China. In Singapore, it is a lot tougher to disappear completely, because
it is a small place. But in other East Asian countries, it is easier; the laws and courts
are of little help.
The venture capitalists interviewed generally indicated that they continued to rely on
relationships with the funded firm and key connections with the government, local law
officials, lawyers, and judges to further aid in the monitoring process and in legal matters
with the firm. This network of relationships provided them with improved and timely
access to top management and other key individuals and to more reliable information.
Sometimes a ready network was acquired by hiring someone with connections to many
such officials in the legal professions. Such relationships are also helpful with assessing
ambiguous and poorly codified information, which is important in early stage monitoring
(Aoki, 2001).

Value Added
The venture capitalist in mature markets typically seeks to add value to the funded
firm (Zider, 1998). It is this value added that is believed to be one of the critical aspects
of the success of venture capital-backed firms in mature markets such as the United States.
However, as noted above, the official role of the venture capitalist is limited in the funded
firm in emerging markets. There may or may not be a board seat for the venture capitalist;
any formal covenants in the funding agreement are also likely be limited and difficult to
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enforce. The prevalence of family business in the emerging economies of East Asia is also
a factor with which venture capitalists contend.
In developed markets, the ability of the venture capitalist to aid the funded firm comes
from the fact that venture capitalists are readily able to replace the chief executive officer
(CEO) of the funded firm and enforce other directives. However, several venture capitalists from East Asia that were interviewed mentioned that entrepreneurs would ignore the
wishes of the venture capitalist and disregard decisions of the board. If the entrepreneur
had the backing of the employees and other local stakeholders, it could be very difficult
for venture capitalists to receive compliance with their recommendations. In East Asia, if
the venture capitalist seeks to remove the firm founder, there can be a strong backlash
from the workforce or society. One venture capitalist from Thailand commented:
Although the [Thai] government has made many attempts at reform in the formal
laws, the system changes very slowly. People here will not follow the laws they do not
agree with. Sometimes they defy them outright as in the case of TPI [Thai Petrochemical Industries] here, in other cases they will just stonewall. They will say yes
yes yes but then they wont do anything. If you want to remove a guy for not doing
his job, or violating an agreement he made with you, it will be difficult, particularly
if he has a lot of family in the firm, or has built up a loyal workforce.
Venture capitalists with experience in China mentioned similar difficulties. In addition, most of the venture capitalists added that the ability to attract future ventures for
funding will be negatively impacted if CEOs are removed from their funded ventures. The
network of the entrepreneur can rally the support of their relatives or friends, and not the
venture capitalist that funded them. The difficulty in replacing the CEO is compounded by
the weak legal environment, which may make it very difficult to replace the CEO in a
timely manner even if the venture capitalist has majority control of the firm. Therefore,
there is a strong tendency for venture capitalists to not replace a CEO of a funded venture,
even in economies where this is easier such as Singapore and Hong Kong, but to generally
try to work with that CEO is a face saving manner, however difficult that may be.
The result is that there are limits on certain ways venture capitalists can add value to
their investments. Nevertheless, network asociations can be quite useful on balance. A
firm founder may not take advice from the venture capitalist, but he or she may be willing
to do so from peers or individuals seen as his or her senior. Therefore, the venture
capitalist is able to use those relationships with the network to subtlely push the funded
firm in the desired direction.
The use of networks to add value to the funded firm is consitent with the important
cultural-cognitive institution of minziface (respect). The venture capitalists also pointed
out that the process by which advice is given can be very important. Sometimes it is best
to give advice on the side and let the CEO disseminate the information to the staff. In this
way, the manager can remain in charge and take credit for the changes if successful, or
can blame the venture capitalist if unsuccessful (Chen, 2001).

Exit
The last key aspect of venture capital is exiting the deal (Sahlman, 1990). The ability
to exit funded ventures is severely constrained in emerging markets in East Asia. The
ability to list a firm is limited. There are several NASDAQ-type share markets in East Asia
including new growth equity markets in Hong Kong, Singapore, and Taiwan. These
have had very limited success creating funding opportunities for fast-growth firms, and
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311

investors have proved skittish about committing much money to the firms that did secure
listings on these markets. Thus, a major source of exit for venture capitalists is still the
strategic purchase of the funded venture. International firms looking for new technology
or entry into a new market can be a major source of such international purchases. A
venture capitalist from Singapore recalled:
With careful attention to firm and government connections, venture capitalists out
here [in East Asia] will be able to package strategic sales of firms, provided financing,
debt coverage and customer relations have been well managed. Venture capital staff
must keep a close eye on these issues because they can get out of hand. Some venture
capitalists and private equity specialists maintain a rather fraternal relationship with
the entrepreneur, but sometimes they dont want to call the loan back from an Uncle
[an individual with whom they are connected]. This can create problems as well.
Local purchase of a funded firm often comes from large firms that are somehow
knowledgeable of the entrepreneur or of individuals in that entrepreneurs network. This
can also facilitate the putting together of business groups that are quite common in much
of East Asia. Several venture capitalists in our sample also pointed out that the lack of a
market for corporate control in the East Asian economies also hindered the ability of
venture capitalists to exit their investments in a timely fashion. Several venture capitalists
also mentioned the problem of the lack of enforceable bankruptcy codes, which hampered
their efforts to participate in restructuring efforts in the emerging economies under study.
No venture capitalist was particularly sanguine about the prospects for developing such
markets and codes around East Asia, although some progress has been made in Singapore,
Hong Kong, and Taiwan in terms of bankruptcy laws. China and Thailand lag considerably behind in terms of the latter.
This article contributes to the literature by drawing attention to the impact of changing
institutional environments on venture capitalist strategic choices during different phases
of an economic transition process in emerging economies. It brings particular attention to
the role of networks in this transition. The findings have implications beyond venture
capitalists to what is unique about entrepreneurs and entrepreneurial ventures that seek
venture capital financing. Therefore, the article concludes with the discussion of how this
perspective can be applied to understanding the value added to these various stakeholders
of the venture capital industry in emerging economies.

Discussion
The developed-economy model of venture capital as commonly practiced in the
United States and United Kingdom has both similarities and differences with those of
emerging East Asia. They are similar in that the steps taken by venture capitalists in both
regions are the same. They differ in that although the goals of venture capitalists in both
developed and emerging markets were fundamentally the same, the path to achieving
those goals somewhat differed.
Venture capitalists in our sample generally used networks to substitute for formal
institutions such as the rule of law and enforcement regimes not yet well established in
emerging markets. Emerging economies in East Asia represent a conundrum for venture
capitalists. The formal institutional development has not kept up with the headlong
rush toward economic development (Peng, 2000, 2003). Informal institutions are very
important in substituting for formal institutions such as laws, regulations, and enforcement mechanisms that are not yet in place (Peng & Heath, 1996). The result is that while
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more formal institutions are slowly being created to fill gaps in emerging economies, there
are still many domains of an economy where there are few formal institutions in place.
Experienced and successful venture capitalists from the region regularly reported that they
employed informal institutions such as their networks with entrepreneurs and government
officials to help manage their funded firms. The parties to the transaction may not be able
to rely on formal institutions to select, monitor, add value to, and exit from their investments, but the informal institution of personal relationships helps to ensure that the
transaction involves what it is alleged to and that there will be the fulfillment of any
agreement between the parties.

Changes in the Air

In the future, however, it can be expected that more formal institutions will be
introduced and will take hold at varying speeds, whether they be rather sudden, such as in
Russia and Poland, or more gradual, as in China (Hitt et al., 2004). Even countries such
as China and Thailand, where the rule of man (as opposed to the rule of law) is still quite
strong, changes toward codified and consistently applied rules have been gradually occurring, although reform will take some time (Ahlstrom, Young, & Nair, 2002; Backman,
1999; The Economist, 2004a). Thus, in the future it is expected that as institutions become
more formal, venture capitalists will come to rely more on these formal institutions and
less on informal institutions such as personal relationships and networks (Guthrie, 2002).
The evidence gathered here supports the view that institutions are becoming more
formal. A number of venture capitalist with extensive experience in the region commented
on the increasing value of accounting data that were generated and their increasing
reliance on board membership to add value to the firm. Venture capitalists are actually
helping this along, functioning as institutional entrepreneurs (Ahlstrom & Bruton, 2001;
DiMaggio, 1988). Venture capitalists mentioned several ways that they were introducing
change to their institutional environments. One method is that venture capitalists have
found ways to unofficially import U.S. venture capital law to their countries. For instance,
venture capitalists in Taiwan stated that they are using California law to draft contracts for
locally funded firms. They asked firms to adhere to U.S. law on intellectual property.
When Taiwanese firms perform reverse engineering, they are asked to follow strict legal
protocols and standards of reverse engineering and product design and development.
Singapore lawyers working in the venture capital area reported something similar with
U.K. laws. One venture capital that funded firms primarily in Taiwan commented:
We ask firms to sign contracts that are consistent with California law and the contracts
used there. Our courts [in Taiwan] recognize the validity of such contracts and use
relevant law and even previous U.S. cases as guidance and for interpretation.
Although we need more laws on the venture capitalentrepreneur relationship, laws to
control opportunistic behavior and ensure better enforcement, the use of U.S. venture
capital law is helpful to us.
Venture capitalists reported that they are sometimes bringing new norms of behavior
to the managers of funded firms by insisting on professional standards such as that certain
accounting practices be upheld, regardless of local laws and custom. Venture capitalists
have also encouraged application of laws more consistent with an Anglo-American
corporate governance approach, whether or not it was locally required.
As a result, it can be expected that venture capital will change ultimately from a focus
on informal, network-centered venture capital strategy toward a more rule-based, imperMarch, 2006

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sonal exchange system. Thus, in the future it can be expected that the actual implementation of venture capital in emerging markets will grow to act more like those in more
developed markets such as those of the United Kingdom and United States. This does not
imply that less formal cultural-cognitive institutions will no longer have an impact on
venture capital in emerging economies. The presence of informal institutions will continue to exert some influence on venture capital in East Asia in the future. As a result, it
can be expected that in the future, economic models based on agency and stewardship
theory will have increasing explanatory power for venture capital and venture capitalist
actions in East Asia.

Implications for Practice

It is crucial that venture capitalists recognize that venture capital in emerging markets
may appear similar to what they know and understand in the developed markets. The
venture capitalist in this environment is likely to have been educated in a leading university in the West, has worked for a number of years in a developed market, and has grown
accustomed to the formal institutions and commercial conventions that everyone accepts
and generally adheres to. It is expected that an entrepreneur will listen to the venture
capitalist and perform his or her duties more or less according to the contract without too
much oversight. There are exceptions, but these can usually be dealt with through formal
channels such as the board of directors. Venture capitalists that move to emerging markets
quickly learn that while goals of a solid annual return on investment are about the same
as in Silicon Valley, many specific actions to attain these goals will be fundamentally
different. As noted, finding backable entrepreneurs is more difficult, and the venture
capital firm may need its own people inside the firm in the larger investments. Venture
capitalists find that their networks take on added importance in the emerging economy.
Networks are used in emerging economies for information purposes and reciprocation
purposes as in the West. But the use of networks to substitute for formal institutions such
as the rule of law, monitoring, and enforcement of contracts are common around East Asia
and indispensable in some regions. Thus, simple things such as establishing a contract
with the entrepreneur and enforcing that contract requires different actions on the part of
the emerging-economy venture capitalist. The venture capitalist may ask someone connected to the entrepreneur to act as an intermediary or even a partial guaranteur for the
investment. Indeed, much of the actual enforcement of the contract may come through
informal methods that are related to the network of the venture capitalist.
Quite often, venture capitalists from mature markets see tremendous opportunities in
emerging markets and feel they can parachute in and make successful investments. The
operation of venture capital in an emerging market should instead follow the classic
advice given to any business seeking to move into a new unknown domainlearn the
characteristics of the market first. For flat, small organizations like a venture capital firm,
this means that they need to have someone on location that understands that market. Major
mistakes have been made when firms have tried to send people in from outside to start
making major private equity deals. They need to be there over a significant period of time,
working on building relationships and integrating themselves into various networks of
business and government to prepare the way for the firms investments.
There seems to be an increasing practical recognition of the high level of commitment
necessary to be successful in such emerging markets. This may limit the potential increase
in venture capital activity in emerging markets in East Asia for the foreseeable future. As
a practical matter, as venture capitalists look at the difficulty in building such a framework,
some venture capitlists will continue to cherry-pick potentially higher return ventures in
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markets that they understand rather than take the risk associated with moving slowly but
more broadly into such markets. This would be unfortunate as there is still a great deal of
opportunity all around emerging East Asia. However, it will take venture capital firms time
and commitment to realize this.

Implications for Research

The findings here also have strong implications for theory and research. In emerging markets today the use of institutional theory as a foundation would appear to have
greater explanatory power than economic-based theories such as agency and stewardship theory. Agency theory has underpinned much of our understanding of the venture
capital in developed markets. However, from the evidence here it would appear that a
richer theoretical foundation is needed. Informal institutions can be utilized to fill the
voids that exist in the formal institutional structure. Networks are very important for the
venture capitalist now as they seek to fill voids in formal institutions. We expect formal
institutions to increase in importance in the future as the necessity of relying on networks to perform activities such as investment selection and monitor decrease. A longitudinal study has a great potential to provide insight into this process in the future.
However, such a study should employ a richer theoretical perspective than agency or
stewardship theory.
Much past research applying institutional theory to various settings has argued that
institutions will change very little or will only change so slowly that institutional change
is not strongly considered (Brint & Karabel, 1991; DiMaggio, 1988; for exceptions, see
Hitt et al., 2004; Leblebici, Salancik, Copay, & King, 1991). This may be true in particular
for cultural-cognitive institutions. However, normative institutions relating to how individuals in different professions act and legal/regulatory institutions are changing steadily
in emerging economies, and they can be changed by institutional entrepreneurs such as
venture capitalists that bring California contracts to deals signed in Taiwan for a funded
firm in mainland China. The result is a movement toward greater convergence between
developed and emerging markets in terms of normative and regulatory elements of
institutional structures. As individuals interact more with each other in a country and with
others outside the country, they learn more about what is expected in business relationships. This, in turn, shapes a greater consistency in their normative values no matter where
they are located. Similarly, the pressure from international business is producing greater
homogenization of normative values. This is particularly true in domains where there are
strong international interconnections between various parties and strong industrial traditions such as venture capital.
This growing similarity should result in greater convergence in norms of professional
behavior of individuals in a varied emerging-market settings. Thus, ensuing theory must
take care to recognize that this theoretical foundation is providing a picture at one point
and time. Institutional regimes do change, and the changes occurring in some emerging
economies in the normative and regulatory (if not cultural-cognitive) pillars can be
substantial.
For researchers, this recognition of the partial convergence of institutions is very
important. Today, researchers typically look at single points in time and argue that the
findings have wider application. However, the evidence here is that the findings have
relevance to that one point in time. If the researcher does not look at longitudinal data and
determine how managerial actions and decisions are changing over time, it will not be
possible to predict what the future will hold.
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Conclusion
This article has examined the role of the institutional environment on the practice of
venture capital in emerging economies in East Asia. Efficiency and accessibility to
investors are important to venture capitalists in both developed and emerging economies.
But in emerging economies, venture capitalists need to place greater importance on
employing personal networks to carry out needed activities to select, monitor, add value,
and someday exit from their invested firms. Personal connections and relationships with
entrepreneurs, government officials, and customers, while important in any setting, are
likely to be more important in emerging markets.
Our findings indicate that the venture capital practice in emerging economies diverges
from Anglo-American models in several specific areas. With the weak formal institutions
in emerging economies, less formal institutions sometimes provide some substitute for the
lack of formal institutions. Venture capitalists monitor firms through informal ties to
entrepreneurs and their families. They create links to key customers, the government and
other important allied firms through personal connections, something that they stated was
particularly important and essential in emerging economies.
Informal cultural-cognitive factors often create the requirement for existing relationships, in order for firms to achieve funding. These networks have been found to be
particularly important for financing in East Asian economies and to be useful in the
absence of more formal monitoring and control mechanisms that exist in the more
developed economies. The venture capital industry is also less regulated and established
than the mainline financial sector in emerging economies. This suggests that relationships
and other similar institutions could be even more important for venture capitalists and
their potential clients. Nearly all of the venture capitalists interviewed agreed that this was
one facet of their work that they did not expect to change soon.
The findings have implications for the research and practice of venture capital and for
theory development. Researchers should take these findings and build on them to explore
this critical topic. The findings will have significant impact not only on venture capital and
entrepreneurship research but also on the broader understanding of networks, institutions,
and their effects on key sectors in the numerous emerging economies of the world.

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David Ahlstrom is a professor of Management at The Chinese University of Hong Kong, Shatin, Hong Kong
Special Administrative Region (SAR).
Garry D. Bruton is a professor of Management at the M.J. Neeley School of Business at Texas Christian
University, Fort Worth, Texas.
The authors would like to thank Vance Fried and the participants of the UNIEI Entrepreneurship Research
Conference Workshop (June 2004), University of Nottingham, Nottingham, U.K. for comments on earlier
versions of this article. The work in this article was substantially supported by a grant from Lee Hysan
Foundation Research Grant and Endowment Fund (for 20022003) of United College, The Chinese University of Hong Kong, the Hong Kong SAR. Additionally, the second author received research support from the
Texas Christian University Entrepreneurship Center.

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