The Practitioner Scholar

Doctor of Management Blog

Jimmy Schwarzkopf Shows how ‘Entrepreneurs in Residence’ can Lower VC Transaction Costs for Seed Funding

June 14, 2010 ·

Venture capitalists (VCs) and entrepreneurs need each other, but many promising companies go unfunded when they otherwise might have succeeded with just a bit of early-stage "seed" funding.  It is simply cost prohibitive for VCs to identify and manage investments in too many small early-stage investments.  According to Dr. Jimmy Schwarzkopf (DM 2007), this is one of the reasons why seed investments make up only 4% of total VC investments in the U.S.

In Israel, however, where there is a common practice of interning "entrepreneurs in residence," VCs spend double that amount - 8% of total investments - in seed funding.  In a recent paper published by Venture Capital,  Dr. Schwarzkopf and his co-authors study draw upon the notion of "transaction costs" from economic theory and describe how entrepreneurs in residence reduce transaction costs associated with seed investment for VC organizations.  They do this in a number of ways, including by attracting high quality opportunities, reducing deal selection costs, and reducing contracting costs.

According to Dr. Schwarzkopf, the Case DM program trained him "to put a little discipline in [his] research."  Dr. Schwarzkopf was already an international thought leader in information technology before joining the program in 2004 - he is one of the world's foremost experts on the Israeli IT industry.  He indicated that he joined the program because it offered a level of quality that he did not find in other programs: "there are a lot of PhD programs where you buy the degree, I couldn't do that... I liked the three paper format.  It gives you the tools you need to understand and do good research."

Dr. Jimmy Schwarzkopf is Research Fellow and Managing Partner for STKI (http://www.stki.info/), a consulting firm specializing in IT market research and strategy analysis. He has worked for a variety of IT organizations for more than 30 years, including META Group, Digital Equipment, and Andersen Consulting.  He has also founded several IT startups and attained the rank of Major in the Israel Defense Force.  Dr. Schwarzkopf received Bachelor's and Master's degrees in systems engineering from the University of Central Florida and a Master's in systems science from Carnegie Mellon University ("all but dissertation" in the CMU PhD program).

The article is titled "How entrepreneurs-in-residence increase seed investment rates," and was published in Volume 12 (January 2010) of Venture Capital: http://www.informaworld.com/smpp/content~content=a918228843&db=all

 

Tags: DM Research

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