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Article
Publication date: 27 July 2021

Kiran Mehta, Renuka Sharma, Vishal Vyas and Jogeshwarpree Singh Kuckreja

The existing literature on venture capitalists’ (VCs’) exits provides insufficient evidence regarding factors affecting the exit decision. This study aims to identify…

Abstract

Purpose

The existing literature on venture capitalists’ (VCs’) exits provides insufficient evidence regarding factors affecting the exit decision. This study aims to identify these factors and examine how VC firms do ranking or prioritize these factors.

Design/methodology/approach

The study is based on primary data. The qualitative analysis was done to develop the survey instrument. Fuzzy analytical hierarchical process, which is a popular method of multi-criteria decision modeling, is used to identify or rank the determinants of exit strategy by venture capital firms in India.

Findings

Broadly, eight determinants of exit strategy are ranked by VCs. A total of 33 statements describe these eight determinants. The results are analyzed on the basis of four measures of VCs’ profile, i.e. age of VC firm, number of start-ups in portfolios, type of investment and amount of investment.

Research limitations/implications

The survey instrument needs to be validated with a larger sample size and other financial backers than VCs.

Practical implications

The study has direct managerial implication for VC firms as it provides useful information regarding the determinants of exit strategy by VC firms in India. These findings can provide necessary information to other financial backers too, viz., angel investors, banks, non-banking financial institutions and other individual and syndicated set-ups providing funding to start-ups.

Originality/value

The current research is unique as no prior study has explored the determinants of VCs exit strategy and prioritizing these determinants.

Details

Journal of Entrepreneurship in Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2053-4604

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Article
Publication date: 9 November 2018

Saibal Ghosh

The focus on excessive corporate leverage as a key factor influencing bank loan delinquency has come into sharp focus in recent times. However, not much analysis has been…

Abstract

Purpose

The focus on excessive corporate leverage as a key factor influencing bank loan delinquency has come into sharp focus in recent times. However, not much analysis has been undertaken on the factors driving corporate distress in emerging economies. Focusing on India as a case study, the purpose of this paper is to investigate the impact of a particular category of corporate debt restructuring (CDR) proposed by the Indian central bank over the last decade in leading an attempt to address bank loan delinquencies, the authors assess the factors influencing the quantum of restructured debt at the corporate level over the time period 2003–2012.

Design/methodology/approach

Besides univariate analysis, the authors use logit regression techniques to analyze the factors driving CDR outcomes in India.

Findings

The results suggest that firms that successfully exit the debt restructuring process are more profitable and less levered and spend a longer time in such restructuring. Little net equity enters these restructured firms, while there is some evidence of equity stripping, particularly in firms with greater promoter control.

Originality/value

To the best of our knowledge, this is one of the early studies that employ micro-level data to make a comprehensive assessment of the factors driving CDR for a leading emerging economy.

Details

South Asian Journal of Business Studies, vol. 8 no. 1
Type: Research Article
ISSN: 2398-628X

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Book part
Publication date: 2 August 2016

Michael Blake

“Tell me the price and I’ll tell you the terms,” is a common axiom among early-stage investors. Investors and seasoned entrepreneurs know that the overall company value is…

Abstract

“Tell me the price and I’ll tell you the terms,” is a common axiom among early-stage investors. Investors and seasoned entrepreneurs know that the overall company value is only the half of the valuation story. Investors frequently insist on receiving securities beyond common stock in return for capital financing. Such securities may be convertible debt, or, frequently, preferred shares.

The classic approach to valuing preferred stock as debt frequently understates the value of preferred shares and, accordingly, overvalues the value of common stock. Aside from preferential liquidation rights and dividends, preferred stock frequently carries conversion rights, participation features, antidilution rights, and other enhancements that are designed to give more return to preferred shareholders at the expense of the common shareholders (who are frequently the founders). Preferred share investment terms are so flexible that they can be engineered to completely negate the perceived benefits of a high valuation to incumbent shareholders, and shift the return to the entering, preferred shareholders.

More sophisticated methodologies for allocating equity value among various classes of shareholders are becoming more common in the accounting and regulatory communities, resulting in more robust and credible value conclusions. Such methodologies are discussed in this chapter using specific examples. These methodologies are also expected to eventually propagate to the investment community because of the economic and financial foundations are quite sound. Although some of these techniques are, admittedly, complex, an understanding of early-stage venture valuation is incomplete without, at least, a high-level understanding of such techniques.

Details

Technological Innovation: Generating Economic Results
Type: Book
ISBN: 978-1-78635-238-5

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Content available
Article
Publication date: 10 September 2020

Matteo Rossi, Giuseppe Festa, Armando Papa, Ashutosh Kolte and Rossana Piccolo

Institutional venture capitalists (IVCs) and corporate venture capitalists (CVCs) deploy analogous activities but adopt different approaches to financing innovation and…

Abstract

Purpose

Institutional venture capitalists (IVCs) and corporate venture capitalists (CVCs) deploy analogous activities but adopt different approaches to financing innovation and value creation for venture-backed firms. Thus, this paper aims to investigate their potential ambidexterity as a result of knowledge management (KM) strategies and processes.

Design/methodology/approach

After a focused literature review showing evidence of KM behaviors as a source of potential ambidexterity for IVCs and CVCs, descriptive, inferential and discriminant analyses on the 15 most active IVCs and CVCs in the world in 2019 are presented. Correlations between numbers of deals, prevailing entrepreneurial intensity and potential ambidexterity are investigated.

Findings

Specific differences are analyzed from a KM perspective, revealing that the number/percentage of operations per round can result as a misleading criterion of knowledge accumulation. Finally, a theoretical model for ambidexterity for venture capitalists is developed.

Originality/value

The study shows that IVCs act with greater investment capacity because of their organizational structure and purpose and focus on financial goals; moreover, they are ambidextrous, although their exploration may more frequently entail exploitation than “real” exploration. CVCs tend to invest in sectors related to their core business, coherent with their strategic purpose and more oriented with KM strategies for accumulating intellectual capital.

Details

Journal of Knowledge Management, vol. 24 no. 10
Type: Research Article
ISSN: 1367-3270

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Article
Publication date: 7 August 2018

Shinhyung Kang

Prior literature indicates that syndication enhances the likelihood of ventures’ successful exits; however, it has neglected the differences among venture capital (VC…

Abstract

Purpose

Prior literature indicates that syndication enhances the likelihood of ventures’ successful exits; however, it has neglected the differences among venture capital (VC) investor types. In fact, there are various types of VC investors with distinctive objectives. Therefore, by focusing on ventures backed by corporate venture capital (CVC) and independent venture capital (IVC) investors, the purpose of this paper is to investigate how the relative influence among a heterogeneous group of VC investors in a syndicate affects the likelihood of the venture’s successful exit.

Design/methodology/approach

A sample of 1,121 US ventures that received funding from both CVC and IVC investors during 2001 and 2013 are collected. Then, a Cox proportional hazards model is applied to analyze the likelihood of a successful exit (i.e. initial public offering or acquisition).

Findings

The relative reputation of CVC investors vis-à-vis their IVC co-investors in a syndicate is negatively associated with the likelihood of the venture’s successful exit. This negative relationship is exacerbated when CVC investors are geographically close to the focal venture, and it is weakened when CVC investors syndicate with IVC investors that they have collaborated in the past.

Originality/value

First, this paper advances VC syndication literature by demonstrating that syndication does not positively affect the likelihood of a venture’s successful exit unless key syndicate members seek to pursue going public or acquisition strategy. Second, this paper also reveals when CVC is beneficial from the ventures’ perspective. CVC participation facilitates ventures’ successful exits as long as reputable IVC investors are present in the syndicate. Third, this study contributes to the multiple agency perspective by showing that formal governance mechanisms affect ventures’ conduct and performance as well as informal sources of power.

Details

Management Decision, vol. 57 no. 1
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 17 August 2020

Yawei Fu and Sin Huei Ng

The purpose of this paper is twofold to examine the factors that contribute to local bias of venture capital in China and to explore the relationship between local bias…

Abstract

Purpose

The purpose of this paper is twofold to examine the factors that contribute to local bias of venture capital in China and to explore the relationship between local bias and performance of venture capital institutions.

Design/methodology/approach

Local bias was measured in line with the model developed by Cumming and Dai (2010). Regression techniques were performed for our long-term cross-sectional data to analyse the potential determinants of local bias. This is followed by the Probit model to test the relationship between local preference and successful exit.

Findings

The overall finding indicated that local bias in China increased over time. The stiff competition among venture capital institutions reduced local bias, but the enhanced innovation capabilities of a particular geographical area amplified local bias because of the knowledge spillover effect. Finally, the results suggested that venture capital institutions with less local bias enjoy a greater likelihood of making successful exits.

Research limitations/implications

This study used successful venture capital exit as a proxy for venture capital institution’s performance because of the unavailability of information such as internal rate of return. Future research should try to adopt other way of measuring venture capital institution’s performance.

Practical implications

This study sheds light on the various possible causes of local bias that the policymakers need to be aware of. Despite the rapid rise of China’s venture capital market in recent years, venture capital institutions have yet to make inroads into the local high-tech industry. This study implies to the policymakers that to reverse this trend, they should formulate policies that foster the long-term performance of venture capital institutions, mitigate the severity of local bias and raise the competitiveness of the Chinese venture capital market.

Originality/value

Because of data limitations, there is currently lack of prior empirical research on local bias of Chinese venture capital institutions based on large-scale data. This study intends to fill the gap.

Details

Journal of Asia Business Studies, vol. 15 no. 1
Type: Research Article
ISSN: 1558-7894

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Book part
Publication date: 8 July 2010

Carlo Salvato, Francesco Chirico and Pramodita Sharma

In this chapter we investigate the role of family-specific factors in facilitating or constraining business exit in family firms. Family business literature seems to have…

Abstract

In this chapter we investigate the role of family-specific factors in facilitating or constraining business exit in family firms. Family business literature seems to have an implicit bias toward continuity and persistence in the founder's business. This is explained by heavy emotional involvement and development of path-dependent core competences over generations. However, several long-lived family firms were able to successfully exit the founder's business. Exit allowed them to free significant strategic resources, which were later reinvested in exploiting novel entrepreneurial opportunities. Our aim is to investigate the process of exit from the founder's business in family firms, to explain both triggers and obstacles to decommitment and de-escalation. We address this issue through the study of the Italian Falck Group's exit from the steel industry in the 1990s, followed by successful startup of a renewable energy business. By carefully triangulating different data sources and different voices within and outside the controlling family, we develop a framework describing family-specific facilitators and inhibitors of business exit, and subsequent startup of a new business. Three types of family-specific factors emerge as relevant in shaping a family firm's likelihood and speed of exit from a failing business: family-related psychological triggers and obstacles to business exit; family-specific components of the structural de-escalation context; family responses to ensuing de-escalation and exit needs. The emerging framework offers a more nuanced interpretation of decommitment activities in family firms, pointing to the differential role family-specific factors may play as facilitators or inhibitors of business exit. We also suggest how these family-specific results may contribute to a deeper understanding of exit in nonfamily firms. Our results also have practical implications for family business entrepreneurial management. Actively managing the different determinants of exit choices that emerged from our study will set the stage for de-escalation from a failing course of action – a dynamic capability all family firms should learn and practice if they intend to transfer their entrepreneurial orientation to next generations.

Details

Entrepreneurship and Family Business
Type: Book
ISBN: 978-0-85724-097-2

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Article
Publication date: 19 September 2016

Xuanli Xie, Hao Ma and Xiaohui Lu

The purpose of this paper is to advance a proactive perspective on business exit and develop a typology of exit strategies.

Abstract

Purpose

The purpose of this paper is to advance a proactive perspective on business exit and develop a typology of exit strategies.

Design/methodology/approach

This is a research paper, which builds on extant theoretical and empirical research.

Findings

Business exit, along with entry, is an integral part of corporate strategy that a firm could utilize to reshuffle its business portfolio and embrace new opportunities. In today’s changing environment characterized by high uncertainty and high velocity, it becomes increasingly important for firms to manage business exit deliberately and proficiently. The traditional perspective which generally perceives exits as failures or responses to failures is no longer sufficient. A proactive perspective on exit could be advanced to better inform exit research and practice. Adopting the dynamic capabilities approach, this paper develops a typology of four exit strategies – retreat, redeploy, realign, and reconfigure – and examines the essential tasks of these strategies as well as the corresponding dynamic capabilities required for their successful implementation.

Originality/value

The proactive perspective advanced in this paper systematically coalesces and elaborates on extant research and formally advocates the importance and feasibility of proactive exit. The typology offered not only helps integrate the dynamic capabilities approach with exit research but also helps better inform exit practice.

Details

Management Decision, vol. 54 no. 8
Type: Research Article
ISSN: 0025-1747

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Book part
Publication date: 3 October 2006

Nick Dew, Brent Goldfarb and Saras Sarasvathy

We challenge the premise that the CEO's job is to keep the corporation alive and thriving at all costs and under all circumstances. We briefly review the differing…

Abstract

We challenge the premise that the CEO's job is to keep the corporation alive and thriving at all costs and under all circumstances. We briefly review the differing normative views of strategic management theorists and organizational theorists about organizational inertia. We then develop an economic model of incumbent behavior in the face of challenger competition that accommodates complementary assets. The model predicts and describes conditions under which organizational inertia, as subsequent organizational failure, is optimal. We then extend the logic and propose that the failure of entrepreneurial firms does not necessarily imply the failure of entrepreneurs. We conclude with a call to study “exit” as a viable strategic option.

Details

Ecology and Strategy
Type: Book
ISBN: 978-1-84950-435-5

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Book part
Publication date: 10 August 2018

Ari Ginsberg and Alfred Marcus

Venture capital’s role in clean energy (CE) technologies can be transformative in creating a sustainable society. Yet there are limitations on how far venture capitalists…

Abstract

Venture capital’s role in clean energy (CE) technologies can be transformative in creating a sustainable society. Yet there are limitations on how far venture capitalists (VCs) can go in supporting these technologies. These limits exist because of the performance expectations of the main stakeholder group who hold VCs accountable. The financial backers of VCs expect an exceptional return on their investment, given the high level of risk they take on when they invest in unproven startups. This chapter explores the constraints that the financial obligations VCs have to their main backers put on their role in bringing about a more sustainable global society. It investigates VC firms’ responses to CE exits (initial public offerings (IPOs) and acquisitions) and shows how prior CE exits affect CE investment growth when we compare VCs exit records to that of their peers. This chapter demonstrates that VCs only increase CE investments when the cumulative number of exits substantially exceed that of their peers, while they decrease these investments when the cumulative number of their exits only moderately outpace that of their peers. The chapter suggests that the reason VCs respond in this way is the financial pressure VCs experience because of their dependence on their financial backers.

Details

Sustainability, Stakeholder Governance, and Corporate Social Responsibility
Type: Book
ISBN: 978-1-78756-316-2

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