Foreign VCs and venture success: Evidence from China |
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| Institution: | 1. Fulton Hall 336, Carroll School of Management, Boston College, Chestnut Hill, MA 02467, United States;2. College of Management, University of Massachusetts Boston, MA 02125, United States;3. 414C Hayden Hall, D''Amore-McKim of Business, Northeastern University, Boston, MA 02115, United States;1. Hohenheim University, Chair of Corporate Finance, Wollgrasweg 49, 70599 Stuttgart, Germany;2. ZEW Mannheim, Department of International Finance and Financial Management, Germany;3. Leuphana University, Nord/LB Chair of Integrated Financial Risk Management, Scharnhorststr. 1, 21335 Lüneburg, Germany;4. University of Groningen, Faculty of Economics and Business, The Netherlands;1. Vlerick Business School, Reep 1, BE-9000 Gent, Belgium;2. Imperial College Business School, United Kingdom;3. Aalto University, Department of Industrial Engineering and Management, PO Box 15500, FI 0076 Aalto, Finland;4. Center for Management Buy-out Research, Imperial College Business School, 46 Exhibition Road, London SW7 2AZ, United Kingdom;5. ETH Zurich, Switzerland;1. Chair of Corporate Finance, University of Hohenheim, Wollgrasweg 49, 70599 Stuttgart, Germany;2. ZEW Mannheim, L 7, 1, 68161 Mannheim, Germany |
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| Abstract: | This paper analyzes the role of foreign VCs in driving venture success in emerging markets. We analyze a comprehensive data set of 4753 portfolio companies from China. We test whether the presence of a foreign VC increases the likelihood that a portfolio company is successfully exited. We find that the presence of a foreign VC does not per se significantly increase the likelihood of a successful exit. However, the likelihood of a successful exit increases if the foreign VC collaborates with a joint venture (JV) partner. Further, the impact of foreign VC backing depends on the nature of the VC, with foreign VCs tending to perform better when investing in late-stage companies and when they are diversified across industries. If a foreign VC successfully exits an investment, then, compared with a domestic-VC, it prefers to exit via a M&A or secondary-buyout than via an IPO, reflecting the significant lock-up periods associated with VC-backed IPOs in China, the difficulty of achieving a foreign listing, and the difficulty listing a start-up on Chinese markets. |
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