Search results

The paper aims to investigate the views of Estonian private equity and venture capitalists about the valuation of high‐growth companies and compare these with theoretical recommendations found in corporate finance and venture capital literature.

The analysis was carried out by using the case study methodology. Structured interviews were conducted in order to present the material for analysis. The dominant model of the case study analysis is exploratory, using an explanation‐building and pattern‐matching technique.

Main findings of the empirical study show that Estonian private equity and venture capitalists make the valuation somewhat differently compared to Western European and American ones. Some findings do not confirm the suggestions made by scientists.

Some of the required data were considered to be a business secret. The research could be extended to a broader sample.

The findings can be used by the managers of private equity and venture capital funds for choosing appropriate cost of capital and valuation model for venture capital projects.

The paper is the first empirical paper, investigating how Estonian private equity and venture capitalists make the valuation of target companies.

Existing literature shows that marketing capabilities of new ventures are critical success factors affecting venture capital funding, startup performance and business failure. The purpose of this study is to investigate whether venture capitalists reward extensive marketing strategies in their startup valuation and whether the marketing mix planning and early strategies on customer orientation predict long-term development of startups.

To address these gaps, this study investigate 107 business plans of new ventures which received venture capital based on these planning documents. The authors use computer-aided text analysis and regression analyses.

This study’s findings show that customer orientation has positive effects on new venture performance and intensive marketing mix planning increases the likelihood of survival. However, venture capitalists decrease their startup valuation when they read too much about customer orientation and operative marketing mix planning.

This study relies on unique internal documents and therefore provides valuable and new insights for research and practice. Further, this study investigate various short- and long-term effects from marketing and customer orientation for a startups’ development.

Building on the venture capital (VC) literature, this paper aims to study the impact of the value added by corporate venture capitalists (CVCs) on their funded companies by comparing its IPO valuation with its independent venture capitalists (IVCs) peers.

This study uses a sample of 3,719 VC-backed ventures, between the years 1998 and 2020. The empirical analysis focuses on the propensity score matching approach, pairing ventures based on their probability of being funded by CVCs, and consequently, interpret the results derived from the valuation multiple ratios between the “nearest neighbors.”

This study finds that companies funded by CVCs can achieve higher valuations at their IPO compared to IVC-backed companies. Moreover, CVC-backed companies outperformance is mainly driven by startups which hold a technological fit with their CVC investor, with higher technological overlaps being translated into more significant valuations.

This study presents systematic evidence to the subject concerning ventures’ type of investors and its effect on the startups’ IPO valuations.

This paper contributes to the enrichment of the industry’s literacy while also easing entrepreneurs’ decisions when choosing a funding partner. CVCs offer a variety of services and support that fits the specific needs of their funded companies.

To the best of the authors’ knowledge, this study is among the first to examine the role of CVCs as a tool to help venture growth.

Private company investors operate in unique environments. Seed equity investors, which generally include venture capitalists and angel investors, often have the particularly unusual role of becoming involved in the oversight of the investee company. This continuing involvement with the investee firm introduces conflicting interests: the desire to maximize the profit from the investment, but also the desire to maintain a positive relationship with the entrepreneur(s) (consistent with the theory of upper echelons/strategic management). We discuss in detail this unusual investment context and the role that accounting disclosures can have in this environment. We predict that accounting disclosures can influence the tradeoff between the profit motive and the relationship motive. Using 64 experienced angel investors as participants in a realistic experimental setting, we find that disclosures indicating conservatively biased accounting choice and lower account risk (variance) lead to angels increasing the valuation of the target firm and forgoing higher profits. Increasing the valuation serves to foster the relationship with the entrepreneur(s). Our findings have implications for entrepreneurs making choices about discretionary disclosures and for standard setters; we also inform theory related to overcoming anchoring.

This paper aims to explain the fundraising and valuation processes of startups and discuss the conflicts of interest between entrepreneurs, venture capital (VC) firms and stakeholders in the context of startup corporate governance. Further, this paper uses the examples of WeWork and Zenefits to explain how a failure of stakeholders to demand an external audit from an independent accounting firm in early stages of funding led to an opportunity for fraud.

The methodology used is a literature review and analysis of startup valuation combined with the Fraud Triangle Theory. This paper also provides a discussion of WeWork and Zenefits, both highly visible examples of startup fraud, and explores an increased role for independent external auditors in fraud risk mitigation on behalf of stakeholders prior to an initial public offering (IPO).

This paper documents a number of fraud risks posed by the “fake it till you make it” ethos and investor behavior and pricing in the world of entrepreneurial finance and VC, which could be mitigated by a greater awareness of startup stakeholders of the value of an external audit performed by an independent accounting firm prior to an IPO.

An implication of this paper is that regulators should consider greater oversight of the startup financing process and potentially take steps to facilitate greater independence of participants in the IPO process.

Given the potential conflicts of interest between VC firms, investment banks and startup founders, the investors at the time of an IPO may be exposed to the risk that the shares of the IPO firms are overvalued at offering.

This study demonstrates how startup practices can be extended to the Fraud Triangle and issue a call to action for the accounting profession to take a greater role in protecting the public from startup fraud. This study then offers recommendations for regulators and standards entities.

There are few academic papers in the financial crime literature that link the valuation and culture of startup firms with fraud risk. This study provides a concise explanation of the process of valuation for startups and highlights the considerations for stakeholders in assessing fraud risk. In addition, this study documents an emerging role for auditors as stewards of proper valuation for pre-IPO firms.

This chapter will describe and analyze the evolution of the structure, content, and other key parameters of business plans in international business plan competitions from the beginnings of such competitions in 1991 through the current time. In particular, the chapter will describe how these competitions have evolved through the current time, the standardization of the structure and content of the plans submitted to these competitions, and the changes that have occurred in their structure and content over time. Then it will explain why these changes have occurred. Specifically, that most of the changes that have occurred in these various areas is a direct or indirect result of pressures on the competitions from the major judges used in them – namely U.S. venture capitalists. Appendices A and B will describe the evaluation criteria used in two of the major competitions – Moot Corp/Venture Labs^® and the Georgia Bowl^® – in more detail, while Appendices C and D will provide information on the Term Sheets and decision-making processes used by such venture capitalists. Appendix E contains four Exhibits that provide additional insights into U.S. venture capitalists’ thought processes. The chapter will conclude with a discussion of the additional changes that are likely to happen in the future.

The purpose of this study is to investigate the effects of increased fund commitments on portfolio size and subsequent effects on portfolio success rates. This paper empirically analyzes the changes in average portfolio size over a 20‐year time period and how these changes affect the venture capitalists' ability to successfully exit their investments.

The authors utilize venture capitalists' fund level data and conduct both univariate and multivariate analysis. The multivariate analysis is conducted using a two‐limit regression tobit model. This is justified since the authors' dependent variable is a ratio bounded by zero and one, hence the tobit specification is the most appropriate methodology.

The authors find that increasing the size of portfolios not only leads to a decrease in the number of successful investments but also significantly affects portfolio success rates. They also find evidence which suggests that some optimal portfolio size exists.

The sample was limited to independent private partnerships that raised funds specifically for investment in US portfolio companies and it represents all funds maintained in the SDC database with non‐missing data on fund size and other fund characteristics.

There are three main practical implications derived from this study. First, venture capitalists overextend themselves by investing in too many portfolio firms. Second, some optimal portfolio size exists beyond which success rate of the venture capitalist's portfolio declines. Third, portfolio size is an important determinant of venture capital portfolio success rates.

The study presents new evidence that venture capitalists have a tendency to increase their portfolio size in years following growth in fund inflows, an idea that has not been investigated earlier. The authors also use data that is not adulterated by significant economic and financial conditions such as internet bubble burst of 2000 and financial crisis of 2007/2008.

Venture capital is a major source of financing for entrepreneurial businesses. Given the importance of venture capital financing to venture creation and regional economic development, it is not surprising that venture capital has emerged as a topic of interest to entrepreneurs and public policy makers, as well as a subject of some academic research. This research has mainly focused on the composition of venture capital fund portfolios, decision‐making criteria used by venture capitalists, and the post‐investment role of the venture capitalists. The role of the investor in the venture capital fund — the people whose money fuels the entire process — has been largely ignored (Fried & Hisrich, 1988).

Private equity funds invest in high‐risk projects and firms. One aspect of investing in small‐ to medium‐sized enterprises and in participating in buy‐out transactions is managing risk at the pre‐investment stage. The purpose of this paper is to document existing pre‐investment risk management practices of European and Indian fund managers, to explore if vijayamathirz techniques differ based on legal system and in developing markets (India), and determine if fund size affects risk management practices.

This study analyzes risk management preferences at the pre‐investment stage among funds that operate in common and civil law countries. Data was collected using a survey instrument.

The results indicate few differences. Where differences are found, they appear related to issues concerning asymmetric information and market structures. Legal systems do not appear to be a significant explanatory factor in determining how private equity funds manage risk at the pre‐investment stage.

The results are useful to fund managers in improving their existing pre‐investment risk strategies. Fund sponsors may use this study to benchmark their existing and future fund managers.

Most entrepreneurs are continually concerned about their finances. Their companies perhaps not yet profitable, they may have a fear of “running out of dry powder.” These entrepreneurs often have fallen in love with their company's technologies, products, and potential markets, but they require more resources. Invariably these emerging ventures shroud their fear of the grueling capital raising marathon by presenting voluminous business plans to potential investors. They often flaunt their “optimized business models.”” Investors, however, typically want to know why the potential investment is such a good deal. The entrepreneur often wants guidance regarding what to say to whom in a changing financing environment.

In this article, our “Practitioner's Corner” associate editor Joe Levangie collaborates with a long-time colleague Paul Broude to address how businesses should “make their capital-raising initiatives happen.” Levangie, a venture advisor and entrepreneur, first worked with Broude, a business and securities attorney, in 1985 when they went to London to pursue financing for an American startup. They successfully survived all-night drafting sessions, late-night clubbing by the company founder, and even skeet shooting and barbequing at the investment banker's country house to achieve the first “Greenfield” flotation by an American company on the Unlisted Securities Market of the London Stock Exchange. To ascertain how the entrepreneur can determine what financing options exist in today's investing climate, read on.