The Components of Networking for Business to Business Marketing: Empirical Evidence from the Financial Services Sector

The purpose of this paper is to present the empirical findings of a recent qualitative study of the networks within which venture capital firms are embedded. The findings indicate that 60% of management buy-out managers’ time is focused on networking activities in order to procure MBO deals through their network contacts. In addition the grounded findings generated uncover the components of networking, within the venture capital industry. The paper begins by presenting a discussion of the venture capital industry and identifying the research problem, it then continues with a review of the relevant literatures, which is followed by the presentation of empirical findings. The paper concludes with a discussion of the implications of the research study. Introduction The theme at the centre of this study is the impact which the networks, within which venture capital firms are embedded, have upon the Management Buy-Out Industry. This is an exploratory study of social networks, where the grounded findings are generated implementing a qualitative, inductive approach using a theoretical sample of a venture capital firm, which is a major player within the British and European MBO industry. The research findings of this study clearly demonstrate that MBO networks are the principal means by which Management Buy-out deals are procured. This type of less traditional form of marketing is used widely throughout the industry, mainly due to the legal restrictions of the Financial Services Act 1986 which states that financial services firms cannot solicit or entice a prospective management buy-out. Consequently, those financial services firms involved in this type of financial provision tend to procure deals through network contacts and networking activities. This paper attempts to further understand these networks, by revealing the components of networking. The UK venture capital industry is now the largest in Europe, accounting in 1995 for 47% of the total venture capital investment: as such it is second only to the United states in world importance (Bannock 1991). Consequently, the UK venture capital industry has made a major contribution to the UK economy and continues to provide the capital which enables entrepreneurs and management teams to start new businesses, expand existing ones or buy the companies they already manage to allow them to fulfil their full potential. The significance of the venture capital industry’s contribution to the financial sector British industry and small to medium sized enterprises (SMEs), led to the consequent establishment of British Venture Capital Association (BVCA) and Management Buy-Out Research Centre at Nottingham University. Venture capital firms and the contribution which they make to the British economy have more recently been recognised not only from an economic stance, there has also been an increasing amount of attention focused on to the contribution which venture capital firms make towards the understanding and explanation of the processes adopted in the provision of capital within the financial sector. In particular the stance adopted by management buy-out managers, and the role, which they play in the market demand for finance by British industry. Management Buy-Out Literature Previous research shows that the majority of studies carried out on the MBO industry have tended to focus on the mechanics of the MBO deal rather than the underlying mechanisms and operational aspects of the MBO industry ( Chiplin, Wright and Robbie CMBOR 1998, 1997, 1991; Robbie and Wright, 1997). Whilst this body of literature is extremely diverse and offers a breadth of research topics, it has tended to produce studies which not only concentrate on the mechanics of the MBO deal (financial and legal aspects), but which in addition involves the collection of quantitative data (Hodges and Wright, 1994; Wright, Thomson and Robbie, 1997; Thompson, 1992; Burns and Whitehouse, 1996; Wright, Ennew and Starkey, 1991) However, although these research studies have been invaluable to the understanding of the MBO phenomenon, researchers have been inclined to focus less on the relational activities and network dimensions which are implemented by MBO managers in order to secure MBO deals.