Experience,screening and syndication in venture capital investments

We consider a theoretical model that offers a rationale for the syndication of venture capital investments: syndication improves the screening process of venture capitalists and prevents competition between investors after investment opportunities are disclosed. The analysis identifies the costs of syndication in terms of investment decisions or post-investment involvement of venture capitalists. These costs depend crucially on the level of experience of venture capitalists. The model generates empirical predictions concerning the determinants of syndication and the characteristics of syndicated deals.     

Staged investments in entrepreneurial financing

Venture capitalists deliver investments to entrepreneurs in stages. This paper shows staged financing is efficient. Staging lets investors abandon ventures with low early returns, and thus sorts good projects from bad. The primary implication from staging is that it is efficient to invest more in later rounds. The model yields a number of predictions on how the ratio of early to late round financing varies with uncertainty, the outside options of both parties, the value of the venture, the costs of investment, and project difficulty. We test these predictions against data on venture capital financings and find significant empirical support for the theory.     

Debt financing,venture capital,and the performance of initial public offerings

We examine the roles of two financial intermediaries, lenders and venture capitalists, in a sample of more than 6000 IPO firms during 1980–2012. Venture capitalists and lenders generally fund different types of firms and, on average, are substitutes; however, in some instances we observe interactions and complementary roles between the two funding sources. Firms with high debt have lower valuation uncertainty, and lower initial day returns than those backed by venture capital. However, firms with high debt levels underperform in the long-run, especially those without venture capital. We provide some evidence that firms backed by reputable venture capitalists perform better.     

How venture capital works

The popular mythology surrounding the U.S. venture-capital industry derives from a previous era. Venture capitalists who nurtured the computer industry in its infancy were legendary both for their risk taking and for their hands-on operating experience. But today things are different, and separating the myths from the realities is crucial to understanding this important piece of the U.S. economy. Today's venture capitalists are more like conservative bankers than the risk takers of days past. They have carved out a specialized niche in the capital markets, filling a void that other institutions cannot serve. They are the linch-pins in an efficient system for meeting the needs of institutional investors looking for high returns, of entrepreneurs seeking funding, and of investment bankers looking for companies to sell. Venture capitalists must earn a consistently superior return on investments in inherently risky businesses. The myth is that they do so by investing in good ideas and good plans. In reality, they invest in good industries--that is, industries that are more competitively forgiving than the market as a whole. And they structure their deals in a way that minimizes their risk and maximizes their returns. Although many entrepreneurs expect venture capitalists to provide them with sage guidance as well as capital, that expectation is unrealistic. Given a typical portfolio of ten companies and a 2,000-hour work year, a venture capital partner spends on average less than two hours per week on any given company. In addition to analyzing the current venture-capital system, the author offers practical advice to entrepreneurs thinking about venture funding.     

Public Policy for Venture Capital

This paper proposes a simple partial equilibrium model to investigate the effects of government policy on venture capital backed investments. Giving up an alternative career, entrepreneurs focus their effort on a single, high risk venture each. Venture capitalists acquire an equity stake and offer a base salary as well. In addition to providing incentive compatible equity finance, they support the venture with managerial advice to raise survival chances. We analyze several policy measures addressed at venture capital activity: government spending on entrepreneurial training, subsidies to equipment investment, and output subsidies at the production stage. While these measures stimulate entrepreneurship, only cost-effective government services can improve welfare.     

Agency Problems and the Performance of Venture-backed IPOs in Germany: Exit Strategies,Lock-up Periods,and Bank Ownership

Abstract

The agency problems for initial public offerings are well documented in the literature. The objective of this research is to investigate the potential conflicts of interest for the ‘Neuer Markt’ in Germany. Of special interest are venture-backed IPOs and those in which banks acted as venture capitalist, underwriter, and provided analyst recommendations. High initial returns and outperformance are observed over the first 6 months of trading, which decreases significantly over the subsequent 18 months. The individual performance depends on the VC's underwriter and bank affiliation, exit behaviour, and lock-up commitment. Venture capitalists, and especially banks, timed their exit well. This indicates some serious agency problems in the German IPO market.     

The value implications of restrictions on asset sales

This paper examines the effect of restrictions over asset disposition, measured by the ratio of secured debt to fixed assets, on firm value. We find evidence consistent with two non-mutually exclusive hypotheses. (1) Restrictions on the disposition of assets reduce firm value by limiting a firm's ability to restructure assets or to raise funds to finance higher NPV projects. (2) Restrictions on asset disposition increase firm value by limiting agency costs of managerial discretion over uncommitted assets. The net effect of restrictions over asset disposition on firm value is determined by potential agency problems and the need for operating flexibility.     

Venture capital investment cycles: The impact of public markets

It is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets. This paper examines how changes in public market signals affected venture capital investing between 1975 and 1998. We find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable. Their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries. The increase in investment rates does not affect the success of these transactions adversely to a significant extent. These findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts.     

Investments in Human Capital in Different Institutional Environments

This chapter investigates the proportion of labor costs that represents investments in human capital, and the rate of amortization of this asset in all six countries for which the required data are available in the Compustat Global Vantage database. The sample includes countries with different financial and legal systems, which enables us to investigate how the growth and depreciation rates of human capital and the resulting human capital asset ratio differ in different institutional environments. The results indicate that the estimated proportion of labor expenses that represents investments in human capital is large in the so-called common-law countries with a market-based financial system. On the other hand, the depreciation rate of the estimated human capital assets is lower in these countries. The results, therefore, indicate that the human capital assets are high in equity-oriented financial reporting environments. The results also indicate that the estimated ratios of the human capital asset to market value of equity are reasonably related to firm characteristics that are hypothesized to be determinants of the human capital asset ratios. Finally, these results remain the same in different industries.     

Firm-level implications of early stage venture capital investment — An empirical investigation

We analyze the impact of venture capital finance on growth and innovation of young German firms. On the basis of statistical matching procedures we confirm findings that venture-funded firms have a higher number of patent applications than those in the control group. However, these are obtained even before the venture capitalists' investment, hence venture capitalists choose firms with demonstrated innovative output. After investment, the number of firms' patents does not differ significantly anymore, however their growth rates are significantly larger. This suggests that the higher innovativeness of venture-funded firms is due to the selection process of the venture capitalist prior to the funding rather than to the venture funding itself. Venture capitalists seem to focus rather on commercialization of existing innovations and growth of the firm.     

Robust Financial Contracting and the Role of Venture Capitalists

We derive a role for inside investors, such as venture capitalists, in resolving various agency problems that arise in a multistage financial contracting problem. Absent an inside investor, the choice of securities is unlikely to reveal all private information, and overinvestment may occur. An inside investor, however, always makes optimal investment decisions if and only if he holds a fixed-fraction contract, where he always receives a fixed fraction of the project's payoff and finances that same fraction of future investments. This contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds.     

风险投资退出时机研究

信息不对称是风险投资运作过程中的重要特征,而退出环节的信息不对称的表现形式不仅与其它环节相似,而且还有其特殊性.不同类型的信息不对称从不同的角度影响风险投资的退出时机.风险投资家在退出过程中必须以企业当前的状态为基础,结合风险资金市场供求和已确定的退出方式,准确把握风险投资运作过程中各种信息不对称的状况,选择能最大化其退出收益的最优退出时机.     

Do venture capitalists imitate portfolio size?

Venture capitalists face the challenge of determining how many entrepreneurial ventures they should invest in. Kanniainen and Keuschnigg (J Corp Finance 9:521–534, 2003) develop a theoretical model based on economic factors that shows how a venture capital fund should set its portfolio size in order to achieve optimal returns. Determining the required economic inputs to this model is difficult in practice however, given the informational asymmetries, uncertainties and ambiguities present in the decision-making environment of venture capitalists. Hence, we contend that general partners of venture capital funds also use their prior venture capital fund management experience, which we refer to as social capital, to overcome the difficulties they face in solving the above optimization problem. Our results support our hypotheses that portfolio size is explained by the interplay of economic and social factors.      

国企“混改”与企业金融资产配置

本文利用2010～2017年中国沪深A股非金融类上市公司面板数据,考察了国企“混改”对企业金融资产配置的影响,并重点分析了国企“混改”过程中企业金融资产配置的动机。结果显示,非国有股东参股促进了国有企业的金融资产投资。机制检验发现,非国有股东参股通过治理效应路径和融资约束路径共同影响了国有企业的金融资产配置行为,具体表现为非国有股东参股带来的监督治理效应和融资约束强化效应均增强了国有企业配置金融资产的预防性储蓄动机,进而促使国有企业增加金融资产投资。上述研究结果表明,非国有股东参股推动的国有企业金融资产投资并非出于短期利益追逐,而是为了平滑企业投资进行的预防性储蓄。本文研究对于如何通过深化混合所有制改革引导企业“脱虚向实”有一定的借鉴意义。     

社会互动与家庭金融资产配置

运用中国家庭金融调查(CHFS)数据,研究社会互动与家庭金融资产配置之间的关系。研究发现,适当增强社会互动会促进家庭更多地参与风险金融市场,增加投资风险资产的比例,提高金融资产的分散化程度,优化资产的配置效率。但当社会互动达到一定程度后,过度的社会互动则会抑制家庭参与风险市场,减少风险资产的投资比重,降低金融资产的分散化程度以及资产配置的有效性。因此,家庭需要建立适度而高质量的社会互动,这有助于家庭获得更多的外部资源,缓解信息不对称,降低交易成本,从而优化家庭金融资产配置。     

Venture capital budgeting — Carry and correlation

We analyze venture capital budgeting in a model with agency conflicts among entrepreneurs, venture capitalists, and investors. Our three-player setting is crucial for the analysis of compensation to venture capitalists. We focus on the venture capitalist's decision to invest in correlated enterprises, and we emphasize the importance of information and the venture capitalist's role in resolving adverse selection on the entrepreneurial side. The importance of information increases the minimum carried interest offered to the venture capitalist, whereas correlated projects decrease it. The carried interest is determined by the size and level of correlation in his portfolio. Our analysis provides predictions in line with a number of empirical observations, e.g. that venture capitalists typically receive a carried interest which is “sticky” around a 20% level.     

金融资产配置与违约风险:蓄水池效应,还是逐利效应？

本文以2007—2016年中国A股上市公司为研究对象,检验了企业金融资产配置对违约风险的影响。实证研究发现:金融资产持有量越多,企业的违约风险越低,金融资产配置的“蓄水池效应”显著;在货币政策宽松时期,金融资产配置导致的代理冲突显现,宽松的货币政策会抑制金融资产投资对违约风险的降低作用。政府规制也会有一定的公司治理作用,将产业政策纳入讨论发现:对于产业政策支持的行业来说,企业金融资产配置能够降低违约风险,但是宽松的货币政策会刺激管理层的短视投资行为,抑制政府规制的公司治理作用。进一步地,本文提出会计稳健性的提升是企业金融资产配置降低违约风险的重要路径。本文的研究结论丰富了企业金融资产配置动机和违约风险影响因素的讨论,能够为政府部门防范经济运行中的内在风险提供有益借鉴。     

Legality and venture capital exits

This paper introduces an analysis of the impact of Legality on the exiting of venture capital investments. We consider a sample of 468 venture-backed companies from 12 Asia-Pacific countries, and these countries' venture capitalists' investments in US-based entrepreneurial firms. The data indicate IPOs are more likely in countries with a higher Legality index. This core result is robust to controls for country-specific stock market capitalization, MSCI market conditions, venture capitalist fund manager skill and fund characteristics, and entrepreneurial firm and transaction characteristics. Although Black and Gilson (1998) [Black, B.S., Gilson, R.J., 1998. Venture capital and the structure of capital markets: banks versus stock markets. Journal of Financial Economics 47, 243–77] speculate on a central connection between active stock markets and active venture capital markets, our data in fact indicate the quality of a country's legal system is much more directly connected to facilitating VC-backed IPO exits than the size of a country's stock market. The data indicate Legality is a central mechanism which mitigates agency problems between outside shareholders and entrepreneurs, thereby fostering the mutual development of IPO markets and venture capital markets.     

Entrepreneurial Financing and Costly Due Diligence

In the traditional solution to the adverse selection problem, entrepreneurs indirectly signal quality via security choice, typically debt. This paper models an alternative solution. The costly due diligence of venture capitalists directly reveals the quality of projects, thereby reducing information asymmetry. It is shown that this mechanism necessitates profit-sharing, a contractual feature usually associated in the literature with managerial agency costs rather than adverse selection.     

Religion and venture investing: A cross-country analysis

Using a sample of 56 countries over the 2000–2016 period, we document lower levels of venture capital investments in more religious countries. These results are not specific to any primary religion. Furthermore, we show that the negative relation between religiosity and venture investing mainly stems from risk aversion inherent in religiosity. Our results are unlikely driven by economic clout, as we show more religious countries in fact have higher levels of domestic credit or nonfinancial investments, despite lower levels of venture investments. We also present several findings consistent with risk aversion. Venture investments in more religious countries are more likely to have successful exits and are less likely to be foreign or early-stage deals. Our results are robust to different measures of venture investments and religiosity, and to alternative specifications that account for endogeneity.