Venture investments as an entry barrier to the developing technology markets: the influence of venture funds strategies on the market monopolization

Abstract

The article deals with the problem of a limited access to the venture financing for the early stage technology startups (so called «Death Valley» companies) which results in the industry monopolization by several large players despite a significant economic potential of alternative technology solutions and niche products. The author demonstrates that venture funds maximizing the return on their investments typically prefer to invest only in potential market leaders. While following such investment strategy the investors typically use a set of standard operational KPIs which might inadequately forecast the future development of the business. Besides the investor’s expectation with respect to the anticipated market structure and therefore the advantages of the leader’s position vs. the followers might be inaccurate. However, given that early stage startups have almost no access to alternative sources of funding, the strategies of venture investors might result in the depletion of smaller players and eventually technology monopolization, which has been proved by several examples on the Russian internet market. The problem might escalate sue to the significant influence of investor’s sentiment (i. e. the expert opinion of other venture market’s players on the project’s potential) on the venture fund’s decision-making process.