This paper examines the impact of government versus private independent venture capital (VC) backing on the exit performance of entrepreneurial firms. Our analyses are based on the VICO dataset, ...which avoids the coding problems of VC type in the Thompson Financial SDC dataset. The data indicate that private independent VC-backed companies have better exit performance than government-backed companies. Mixed-syndicates of private-independent and governmental VC investors give rise to a higher (but not statistically different) likelihood of positive exits than that of IVC-backing. Our findings are not influenced by the composition of the syndicate in terms of size and institutional heterogeneity. Our results remain stable after controlling for endogeneity concerns, selection bias, omitted variable bias, legal and institutional differences across countries and over time through several econometric techniques. Moreover, our results are not driven by: i) the holding period of the different types of VC investors; ii) the potential signaling effect of GVC towards IVC investors; iii) the firm's financial structure and net cash-flow ratio; iv) the investment stage; and v) the distance between the VC investor and the target company.
•Governmental (GVC) vs independent venture capital (IVC) impact exit performance•VICO dataset sponsored by the European Union under the 7° Framework Program•IVC positively impacts exit performance, GVC does not.•Positive impact of mixed syndicates, comparable with that of IVC•Results stable after controlling for syndicate size and heterogeneity
Silicon Valley, Singapore, Tel Aviv--the global hubs of entrepreneurial activity--all bear the marks of government investment. Yet, for every public intervention that spurs entrepreneurial activity, ...there are many failed efforts that waste untold billions in taxpayer dollars. When has governmental sponsorship succeeded in boosting growth, and when has it fallen terribly short? Should the government be involved in such undertakings at all? Boulevard of Broken Dreams is the first extensive look at the ways governments have supported entrepreneurs and venture capitalists across decades and continents. Josh Lerner, one of the foremost experts in the field, provides valuable insights into why some public initiatives work while others are hobbled by pitfalls, and he offers suggestions for how public ventures should be implemented in the future.
•We investigate whether GVCs spur invention and innovation.•We focus on young biotech firms in Europe.•Stand-alone GVCs have no effect on invention and innovation.•GVCs increase patenting when ...syndicating with IVCs.•DVCs (TVCs) have a positive effect on invention (innovation).
This paper explores whether and how governmental venture capital investors (GVCs) spur invention and innovation in young biotech companies in Europe. To gauge invention we focus on the simple patent stock at the company level, while innovation is proxied by the citation-weighted patent stock. Our findings indicate that GVCs, as stand-alone investors, have no impact on invention and innovation. However, GVCs boost the impact of independent venture capital investors (IVCs) on both invention and innovation. We conclude that GVCs are an ineffective substitute, but an effective complement, of IVCs. We also distinguish between technology-oriented GVCs (TVCs) and development-oriented GVCs (DVCs). We find that DVCs are better at increasing firm’s inventions, and that TVCs, combined with IVCs, support innovations.
Equity financing in entrepreneurship primarily includes venture capital, corporate venture capital, angel investment, crowdfunding, and accelerators. We take stock of venture financing research to ...date with two main objectives: (a) to integrate, organize, and assess the large and disparate literature on venture financing; and (b) to identify key considerations relevant for the domain of venture financing moving forward. The net effect is that organizing and assessing existing research in venture financing will assist in launching meaningful, theory-driven research as existing funding models evolve and emerging funding models forge new frontiers.
Entrepreneurial ventures are a key source of innovation. Nowadays, ventures are backed by a wide array of investors whose complementary asset profiles differ significantly. We therefore assert that ...entrepreneurial ventures can no longer be studied as a homogeneous group. Rather, we harness the inherent dichotomy in the profiles of independent VCs and corporate investors to study ventures' innovation outcomes. Our sample consists of 545 U.S. biotechnology ventures founded between 1990 and 2003 and backed by independent venture capitalists (VCs) or corporate VCs (CVC). We find CVCs' investees exhibit higher rates of innovation output, compared to independent VC-backed peers. Moreover, the performance of CVC-backed ventures is sensitive to their ability to leverage corporate assets, underscoring the role of CVC accessibility and FDA approval requirements as the mechanisms associated with CVC contribution.
Impact investing Barber, Brad M.; Morse, Adair; Yasuda, Ayako
Journal of financial economics,
January 2021, 2021-01-00, 20210101, Volume:
139, Issue:
1
Journal Article
Peer reviewed
We show that investors derive nonpecuniary utility from investing in dual-objective Venture Capital (VC) funds, thus sacrificing returns. Impact funds earn 4.7 percentage points (ppts) lower internal ...rates of return (IRRs) ex-post than traditional VC funds. In random utility/willingness-to-pay (WTP) models investors accept 2.5–3.7 ppts lower IRRs ex ante for impact funds. The positive WTP result is robust to fund access rationing and investor heterogeneity in fund expected returns. Development organizations, foundations, financial institutions, public pensions, Europeans, and United Nations Principles of Responsible Investment signatories have high WTP. Investors with mission objectives and/or facing political pressure exhibit high WTP; those subject to legal restrictions (e.g., Employee Retirement Income Security Act) exhibit low WTP.
In this paper, we study how the support of heterogeneous venture capital firms (VCs), that is: independent venture capital firms (IVCs), bank-affiliated venture capital firms (BVCs), and corporate ...venture capital firms (CVCs), shapes the delisting route of companies through business failure and merger and acquisitions (M&As), while distinguishing between European M&As and extra-EU M&As after the initial public offering (IPO). We find that the influence of the VCs in the firms’ post-IPO delisting varies according to the mode of delisting and the type of venture capitalist. In particular, we find that the presence of leading IVC and BVC investments before IPO is related to a lower likelihood of exiting the stock market through business failure but does not significantly affect the likelihood of M&As. In contrast, the presence of CVC investors is related to a higher likelihood of delisting through extra-EU M&As.
This paper examines the determinants and consequences of investor activism in venture capital. Using a hand-collected sample of European venture capital deals, it shows the importance of human ...capital. Venture capital firms with partners that have prior business experience are more active recruiting managers and directors, helping with fundraising, and interacting more frequently with their portfolio companies. Independent venture capital firms are also more active than 'captive' (bank-, corporate-, or government-owned) firms. After controlling for endogeneity, investor activism is shown to be positively related to the success of portfolio companies.
The Impact of Venture Capital Monitoring BERNSTEIN, SHAI; GIROUD, XAVIER; TOWNSEND, RICHARD R.
The Journal of finance (New York),
08/2016, Volume:
71, Issue:
4
Journal Article
Peer reviewed
Open access
We show that venture capitalists' (VCs) on-site involvement with their portfolio companies leads to an increase in both innovation and the likelihood of a successful exit. We rule out selection ...effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs' travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large-scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies' activities.
We find that entrepreneurial firms in emerging nations backed by syndicates composed of international and local venture capitalists have more successful exits and higher post-IPO operating ...performance than those backed by syndicates of purely international or purely local venture capitalists. We control for the potential endogenous participation and syndication by international VCs using instrumental variables analyses and a natural experiment and find a causal effect of international VC participation on successful outcomes. International VCs face disadvantages in their investments due to the lack of proximity to the entrepreneurial firm. Using air service agreements between countries as an exogenous change in effective proximity, we find that entrepreneurial firms backed by international VCs are more successful when travel becomes easier between the two countries. Overall, our results indicate that the greater venture capital expertise of international venture capitalists and the superior local knowledge and lower monitoring costs of local venture capitalists are both important in obtaining successful investment outcomes.
•We compare the performance of firms backed by two different types of VC syndicates.•Syndicates consisting of both local and international VCs are compared to those with only one type of VC•International VCs have an expertise advantage but lack proximity and local knowledge.•Firm performance is better when backed by syndicates of both local and international VCs.
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