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.
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