Voluntary disclosure of corporate venture capital investments

In this paper, we investigate drivers of corporate venture capital investment announcements. Consistent with voluntary information disclosure theories, we find that a public announcement is less likely to be made when the start-up firm is in the seed stage but more likely when the parent company is large, active in concentrated markets and in non-high-tech industries; spends heavily on internal R&D and capital expenditures; has low leverage ratio; and faces more information asymmetry problems. In addition, corporate venture capital programs managed externally disclose more often than internal programs. We find that parent companies facing more severe asymmetric information problems enjoy the highest abnormal returns in response to announcements. This study contributes to the literature on voluntary information disclosure in that it evidences that larger corporations use disclosure of some of their investments in innovative startups strategically as a way to convey valuable information to the market.     

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.     

Performance differentiation: cutting losses and maximizing profits of private equity and venture capital investments

Recent research has pointed out the need to differentiate between good versus poor performance of venture capital and private equity investments and to analyze the factors that determine the ‘winners’ and ‘losers’ of a fund. This study examines the different contractual and behavioral characteristics and their influence on the positive and negative performances of private equity investments. Specifically, we analyze how fund managers apply tools and investment behavior to mitigate risks and maximize returns. The empirical investigation of these questions is based on a merged dataset, which combines the Venture Economics and CEPRES databases. It includes a total of 1,011 investments made by 137 different funds that belong to 54 private equity and venture capital firms worldwide over the period from 1979 to 2003. Our results confirm that the reduction of losses and the maximization of investment profits have different antecedents. Although losses are minimized by the use of convertibles and by increasing the venture capital firms’ accumulated experience, profits are increased by the potential of the fund’s management to allocate resources to portfolio companies. Our findings contribute to the understanding of the determinants of venture capital and private equity returns by differentiating between the mitigation of risks and the maximization of profits.      

Strategic decertification in venture capital

An early-round investment delivers information about the quality of a project before more funds are needed. To obtain the best early-round financing offer, the entrepreneur should then approach a venture capitalist with highest screening ability. Going for the most accurate venture capitalist can however backfire in a follow-on round of financing. He could extract advantageous terms by threatening not to reinvest: the more accurate the incumbent, the more the signal sent by his non-participation to alternative financiers would be negative. Then, the most attractive early-round venture capitalist has only intermediate screening ability. The threat of strategic decertification enhances credit rationing.     

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.     

Does investor identity matter? An empirical examination of investments by venture capital funds and hedge funds in PIPEs

I examine the emerging phenomenon of PIPEs (private investments in public equity) invested by venture capital funds (VCs) and hedge funds (HFs) and analyze whether and how these investors add value to firms by comparing a sample of 113 VC-invested PIPEs to a sample of 397 PIPEs with HFs. I find that VCs gain substantial ownership, request board seats, and often keep their stake after the PIPEs. In contrast, HFs rarely join the board of directors and typically cash out their positions shortly after the PIPE. The stock performance of VC-invested firms is significantly better than HF-invested firms both in the short run and in the long run. The positive valuation effect of having VCs as PIPE investors appears to be a certification effect rather than a monitoring effect. A key implication from these findings is that investor identity matters.     

风险投资的策略有哪些变化?

风险投资在2007年第二季度表现如何?清科集团总裁兼首席执行官倪正东有一个评价,他说:"在刚刚走过的2007年第二季度,中国创业投资活动激增,无论是投资基金的募集还是投资的额度都达到了振奋人心的新峰值,成为中国创业投资产业史上一个新的里程碑.     

做风险投资,IBM的理念

IBM这样描绘公司的风险投资战略:公司风险战略大多集中在金融投资领域,而IBM却采取了一种与众不同的互惠战略,即将关系置于直接投资之上的战略.目前,该战略正结出丰硕的成果:大的风险投资公司正逐渐了解IBM的愿景和战略并看到由其投资公司变为其组合公司从而创造利润的大好机遇;创业者们正获取IBM的技术技能、市场渠道,从而为其自身解决方案获得更高的信誉度和有效性.     

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.     

风险投资是什么?

风险投资是什么?一个本是很明确的问题,怎么就有了疑问. 前不久,本刊记者应邀参加了牛仔投资承办的2007首届武汉国际风险投资大会,两天议程走下来,忽然觉得风险投资是一个需要经常说起的话题,特别是在中小企业融资难的今天.     

Squaring venture capital valuations with reality

We develop a valuation model for venture capital–backed companies and apply it to 135 US unicorns, that is, private companies with reported valuations above $1 billion. We value unicorns using financial terms from legal filings and find that reported unicorn post-money valuations average 48% above fair value, with 14 being more than 100% above. Reported valuations assume that all shares are as valuable as the most recently issued preferred shares. We calculate values for each share class, which yields lower valuations because most unicorns gave recent investors major protections such as initial public offering (IPO) return guarantees (15%), vetoes over down-IPOs (24%), or seniority to all other investors (30%). Common shares lack all such protections and are 56% overvalued. After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status.     

Asset liquidity and venture capital investment

We examine the relationship between asset market liquidity and venture capital (VC) investment and find that it is inverted U-shaped. Asset liquidity and VC investment are positively related for low levels of asset liquidity but negatively related for higher levels of asset liquidity. We also document evidence that VC firms with more industry experience invest more in a liquid asset market than those without industry experience or with significant experience in other industries. Portfolio companies obtained their first investment in a liquid asset market are less likely to exit successfully; however, given a successful exit, they prefer to exit through mergers and acquisitions rather than going public.     

Government venture capital and cross-border investment

We use data on venture capital investments from 26 countries from 1998–2013. We investigate the following questions: Do domestic government sponsored venture capital funds augment or curtail domestic private venture capital funds from cross-border investment? Do government sponsored venture capital funds attract or repel foreign private venture capital investment? The results show that a preponderance of mixed-structured over pure-structured government venture capital investment has a crowding-in effect overall: it attracts domestic and international private venture capital to the domestic venture capital market while simultaneously increasing total private venture capital investment. In contrast, a preponderance of pure-government over mixed-government venture capital fund investment repels foreign private venture capital investment (has a crowding out effect). We find that both these effects are more pronounced for domestic rather than foreign private venture capital and that the attraction effect is stronger than the repulsion effect.     

The reputation effect of venture capital

The main purpose of this paper to examine how the reputation effect of venture capital (VC) is associated with the initial return and ex-post performance of its invested IPO firms. In this paper, we use 267 Taiwanese IPO firms in 1994–2007 periods and find that VC-backed firms outperform non-VC-backed firms in terms of ex-post equity market-to-book ratio, ROA and R&D expenditure ratio. For those VC-backed IPOs, reputable VC-backed firms outperform mediocre VC-backed ones. Moreover, among the four proxies of VC reputation, the market share with respect to total IPO proceeds is most promising in explaining IPO firms’ ex-post performance. The overall result confirms the reputation effect associated with VC.     

Making sense of corporate venture capital

Large companies have long sensed the potential value of investing in external start-ups, but more often than not, they fail to get it right. Remember the dash to invest in new ventures in the late 1990s and the hasty retreat when the economy turned? This article presents a framework that will help a company decide whether it should invest in a particular start-up by first understanding what kind of benefit might be realized from the investment. The framework--illustrated with examples from Intel, Lucent, and others--explains why certain types of corporate VC investments proliferate only when financial returns are high, why other types persist in good times and in bad, and why still others make little sense in any phase of the business cycle. The framework describes four types of corporate VC investments, each defined by its primary goal--strategic and financial--and by the degree of operational linkage between the start-up and the investing company. Driving investments are characterized by a strong strategic rationale and tight operational links. Enabling investments are also made primarily for strategic reasons, but the operational links are loose. Emergent investments, which are characterized by tight operational links, have little current--but significant potential--strategic value. Passive investments, offering few potential strategic benefits and only loose operational links, are made primarily for financial reasons. Passive corporate VC investments dry up in a down economy, but enabling and driving investments usually have more staying power. That's because their potential returns are primarily strategic, not financial. In other words, they can foster business growth. Emergent investments may make sense even in a weak market because of their potential strategic value--that is, their ability to help companies identify and spark the growth of future businesses.     

Human capital investment,new firm creation and venture capital

This paper studies the relation between firm investment in general human capital, new firm creation and financial development for new firm financing, such as the existence of a venture capital industry. On one hand, firm investment in general human capital leads employees to generate new innovative ideas for starting their own firm. Since employees need a venture capitalist to start their new firm, firm investment in general human capital encourages the creation of venture capitalists by increasing the need for their services, such as providing advice and monitoring. On the other hand, as new firm financing becomes available, firms’ willingness to invest in general human capital increases, and as a by-product, the creation of employee-founded and venture capital-backed new firms increases in the economy. Hence, our model provides a rational explanation for the emergence of new firms created by employees of established firms, which represents one of the most common type of new firms in many industries.     

天津市创业投资的发展状况

天津市自2000年全面建立创业投资机制以来,创业投资行业取得了较快发展.2005年末,天津市创业投资企业已由2000年的10家增长到65家,增长了5.5倍;创业投资企业的注册资本总额由2000年的9亿元增长到2005年的42亿元,增长了3.5倍;创业投资企业先后投资天津市150多家高新技术企业,累计投资额超过15亿元,在促进天津市科技创新、扶持高新技术企业发展中发挥了重要作用.     

Nonlinearity and smoothing in venture capital performance data

Performance indices for illiquid investments are known to suffer from returns smoothing, and the purpose of this paper is to investigate the presence and nature of such smoothing in the context of venture capital. We find that while the standard techniques may or may not indicate the presence of smoothing, significant evidence of smoothing exists when a nonlinear regime-dependent model is specified. Further, the model suggests the presence of regime-specific responsiveness of venture capital returns whereby different weights are placed on newly arrived information in different regimes.     

专家视点:风险投资的中国之路

按照专家的观点,风险投资在中国已经进入蓬勃发展时期,那么未来支撑中国风险投资发展道路的关键因素有哪些呢?     

Start-up investment with scarce venture capital support

Venture capitalists, representing informed capital, screen, monitor and advise start-up entrepreneurs. The paper reports three new results on venture capital (VC) finance and the evolution of the VC industry. First, there is an optimal VC portfolio size with a trade-off between the number of companies and the value of managerial advice. Second, advice tends to be diluted when the industry expands and VC skills remain scarce in the short-run. The delayed entry of experienced VCs eventually restores the quality of advice and leads to more focused company portfolios. Third, as a welfare result, VCs tend to provide too little advisory effort and to invest in too few companies. Testable implications are also discussed.