Search results

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.

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.

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.

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

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.

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

A critical aspect in venture capital (VC) exiting is the choice of exit mode. This study aims to predict if venture capitalists (VCs) can take the venture capital undertaking public by identifying the impact of investment attributes, market timing and macroeconomic conditions on the choice of mode of exit for VCs.

The study uses logistic regression on a sample of 632 Indian VC-backed firms where VCs exited during the past two decades via initial public offers (IPOs) and other routes, including strategic sale, secondary sale and buyback.

Results suggest that growth stage investments, larger syndication size and a larger number of IPOs increase the probability of exiting through IPOs, whereas investments in the information technology and information technology-enabled services industry have a higher likelihood of being exited through other routes. Region and gross domestic product are found to be statistically insignificant in predicting the likelihood for a particular mode of exit.

The results have practical implications for VCs as knowledge regarding the influence of investment attributes, market timing and macroeconomic conditions can help them in deciding their exit strategy vis-à-vis mode of exit and can maximize their potential gains. The results also have implications for the potential investors, primarily the public at large and acquirers.

The determinants of VC exit options remain an unexplored area in the Indian context. To the best of the authors’ knowledge, the study is the first of its kind that has used investment attributes, market timing and macroeconomic conditions to predict VC exit options in India.

This study examines whether recruitment of local managers helps foreign venture capital (VC) firms mitigate the liability of foreignness measured by cultural differences and improves their performance in relationship-based emerging markets such as China.

From a data set comprising 1,939 Chinese portfolio companies with first-round investments by 282 foreign lead VC firms during 2000–2015, the study tracks the outcome of each investment until the end of 2018 and collects the background information of partners of lead VC firms. A survival analysis using the Cox hazard model is conducted.

Cultural differences of the foreign VC's home country, when compared to China, positively influence the success of VC firms. Recruitment of local managers reinforces this positive influence. The influence of local manager recruitment is more pronounced for VC firms with politically connected local managers, during politically uncertain periods, in industries supported by the government, in provinces with high government intervention and in VC firms with decentralized decision rights given to local managers.

This research complements the international business literature on the advantages of hiring local managers and identifies the channels through which local managers help foreign VC firms obtain relationship-based resources. The findings also have practical implications for those foreign investors who intend to enter into relationship-based emerging markets.

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.

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

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.

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.

This paper aims to investigate how the passage of the Sarbanes Oxley Act (SOX) impacted the likelihood and timing of the decision of leveraged buyout (LBO) firms to exit via initial public offering (IPO) (reverse-LBO) and the mediating effect of reputed private equity (PE) firms.

The sample comprises firms that went private via LBO between 1990 and 2018. The authors use logistic and ordinary least square regression models to compare the effect of SOX on the re-listing decision and the time taken to re-list.

LBO firms were less likely to exit via public offering after SOX, and the time from LBO to IPO was significantly longer for exiting firms post-SOX. PE firm reputation partially reversed the reluctance to exit via IPO and shortened the time to exit.

The primary focus is RLBOs; the authors do not directly examine other methods of LBO exit. The findings have policy implications for unintended impacts of SOX. Despite the benefits of increasing transparency and protecting investors, SOX reduced the likelihood of going public and increased the time to IPO, potentially reducing product market competition.

RLBOs present a unique experimental setting as the authors can test the impact of SOX on both the likelihood and time to go public, whereas prior literature using first-time IPO samples are able to test only the likelihood. The authors also show that the reputation of the advising PE firm attenuates the reluctance and time taken for RLBOs to re-list. The authors are, thus, able to provide a new perspective on the impact of SOX on the going public decision.

“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.

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.

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.

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.

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.

Social interaction in comment sections has become a key factor for backers' decision making in crowdfunding platforms. However, current research on the two-way social interaction in crowdfunding is insufficient, and there exist inconsistent conclusions. This study focuses on the social interaction between creators and backers and explores its influence on the successful exit of crowdfunding projects.

The extended Cox model is used for the empirical analysis of 1,988 crowdfunding projects on the Modian (www.modian.com) platform, a crowdfunding platform for cultural and creative projects in China. The two-way social interaction is reflected in comment quantity and sentiment, as well as reply rate.

Results reveal an inverted U-shaped relationship between comment quantity/sentiment and the successful exit of crowdfunding projects. This relationship is strengthened by high reply rate.

This study focuses on comment quantity and sentiment. The inverted U-shaped results reconcile previous conclusions. Replies from creators are regarded as a separate factor, and their moderating role is explained. The study research proves the importance of social interaction in crowdfunding platforms and provides suggestions for backers, creators and platform managers.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.