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Government venture capital and cross-border investment
Abstract
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.
... Unlike other studies that focus specifically on Sub-Saharan Africa in examining the determinants of private capital flow volatility, the research found that global liquidity reduced the volatility of FDI, while private sector credit increased it; the quality of macroeconomic policies and the degree of trade openness were significant pull factors in reducing the volatility of cross-border bank loans, whereas financial openness increased risk. Dahaj and Cozzarin (2019) used venture capital investment data from 26 countries from 1998 to 2013 and found that mixed-structure government venture capital investments generally had a crowding-out effect compared to pure-structure government venture capital. It attracted domestic and foreign private venture capital into the domestic venture capital market, increasing the total amount of private venture capital. ...
This paper examines the long-term dynamic impact of short-term cross-border capital flows on the Shanghai Composite Index and the CSI 300 Index using monthly data from 2010 to 2020 and a Vector Autoregression (VAR) model. With the financial opening and the internationalization of the renminbi in China, the stock market has gradually liberalized its management of foreign capital. As a result, the A-share market has become a target for passive capital inflows from overseas investors. This has further intensified the volatility of asset prices and posed challenges to China's cross-border capital regulation. According to the study, short-term cross-border capital flows have a negligible impact. However, a positive correlation appears between 4 to 9 months, followed by a significant negative impact in the 10th month, reflecting the oscillatory risks that cross-border capital flows pose to China's stock prices. This finding reflects how Chinese capital controls have limited the short-term negative impact of cross-border capital flight on stock prices. The paper recommends strengthening the regulation of short-term cross-border capital, cautiously advancing the financial opening system, and actively improving the stock market system.
... Venture capital investmenthigh-HDI Funding businessess across countries sample by geography, designing and testing alternative measures of intellectual and social capital, and examining the impact of factors like gender and professional experience on VC investment (Barbi and Mattioli, 2019). Additionally, to replicate the study using firm-level data within each country must prove to be interesting and also exploring the influence of access to technological tools (Agyekum et al., 2022) and government-sponsored VC funds (Dahaj and Cozzarin, 2019) would provide further insights. In conclusion, our study underscores the importance of intellectual and social capital variables in investors' funding decisions, emphasizing the need for deeper investigation in future studies. ...
Purpose
The study aims to examine the impact of intellectual and social capital in funding businesses.
Design/methodology/approach
The study made use of fixed-effects panel data models with a sample of 142 countries from the five continents during the period 1998–2018.
Findings
It was found that human capital (HC), relational capital, structural capital and social capital play a role in investors’ decisions to fund a business. The study revealed that investors’ funding decisions in low human development index countries are based mainly on education, while those in high human development index countries are based mainly on the creativity component of HC and on relational, structural and social capital.
Research limitations/implications
The study needs to be replicated using firm-level data within each country. Moreover, the search for new proxies for intellectual and social capital (although the list of variables is exhaustive) both at the country and firm level, constitutes an interesting avenue for future research.
Practical implications
Countries should pay attention to intellectual and social capital to encourage business activity. In particular, low human development countries should strengthen HC, such as the school enrollment rate, with early entrepreneurial training and increase research and development investments, while high human development countries should continue to foster strategic alliances, protect intellectual property and maintain or increase the level of trust in the country.
Originality/value
The study contributes to literature by being the first to explore such a variety of intellectual and social capital variables from a country-level perspective.
... Enterprises need financial support at the beginning of their businesses (Colombo et al., 2019). Many entrepreneurs start their own businesses on campus, and their growth requires the support of the government, universities and social enterprises (Wen et al., 2018;Dahaj & Cozzarin, 2019). Frid et al. (2016) believes that whether companies can obtain external financing is determined by the company itself and there is a gap between low wealth and high wealth enterprises in obtaining external financing. ...
Due to the economic trends around the world and the strong support and guidance of relevant governments, the number of entrepreneurial projects has soared in China. It is necessary to construct a standard assessment system for entrepreneurial projects that is comprehensive and effective. This study extracted six dimensions and 23 criteria for evaluating entrepreneurial projects. This study applies the best and worst methods to obtain the weights of the dimensions and criteria. Then, the Technique for Order Preference by Similarity to an Ideal Solution method was used to evaluate the entrepreneurial projects in an entrepreneurial competition. The results show that team quality, the business model and entrepreneurship ability are the three most important dimensions for evaluating entrepreneurial projects. The improvement of the innovating ability, the training of the team and the value proposition are the three keys to successful implementation of the entrepreneurial projects.
Cross-border venture capital (CBVC) research is becoming increasingly important due to globalisation and its role as a key economic driver of development. As a result, the interest in the domain has been steadily growing in recent years and attracted much attention from top scholars worldwide. Our research provides a comprehensive overview of the growing body of academic research regarding cross-border venture capital. Based on a thorough screening and selection process of literature and an in-depth analysis, we review, summarise, compare, and evaluate the literature on a wide array of topics related to CBVC and identify existing general and theoretical trends over the past three decades. At last, we discuss research gaps and propose avenues for future research.
Venture capital plays an important role in enterprise value reconstruction, R &D innovation, and a range of other areas. To study the investment behavior characteristics and the influencing factors of investment performance, we construct a heterogeneous network model composed of investment institutions and invested enterprises and proposes a series of network indicators. According to the empirical analysis of 61402 Chinese venture capital records from 2001 to 2020, we found that compared with corporate venture capital institutions, state-backed investment institutions have closer internal cooperation, investment firms with greater resource diversity. Meanwhile, these institutions took on the function of the bridge in the primary stage with some CVCs gradually becoming the bridge between the two after 2016. In terms of performance influencing factors, with the intensification of market competition, the positive impact or insignificant impact of Resource Limitation, Resource Adequacy, Resource Uniqueness, Industry Diversity and Regional Diversity on investment performance gradually turns negative.
The primary aim of this study was to assess the investment activity of basic local government units in the development of renewable energy sources co-financed by EU funds depending on CO2 emissions and other socio-economic conditions in terms of regions of Poland in the years 2007–2020. Empirical studies aimed at the verification of the research hypothesis that “the greatest investment activity in local projects co-financed from EU funds related to the development of renewable energy sources is observed for local government units in regions with highest CO2 emissions”. Empirical studies were conducted based on data from the Ministry of Investment and Economic Development in Poland, the Local Data Bank, and the National Centre for Emissions Management. Thus, the conducted analyses provide both cognitive and applicatory values for the establishment of an appropriate energy transition policy in individual regions of Poland, which may be implemented by local government authorities within the current financial framework. Data concerning CO2 emissions at the regional level were estimated by applying the original disaggregation method as modified by the authors, which made it possible to fill the research gap resulting from the lack of data on emissions at the regional level. In order to show the regional diversification in investment activity of local government units in terms of renewable energy sources, its multi-faceted analysis was conducted by applying the Ward method. Clusters of regions with similar investment activity of local government units were described based on characteristics included in the typological classification (so-called active characteristics) and selected indexes showing CO2 emission levels, as well as selected socio-economic indexes (so-called passive characteristics). Based on the empirical studies, the research hypothesis presented in this paper was negatively verified. Considering both multiannual financial frameworks, the EU financial support for the development of renewable energy sources was used primarily by local government units of a predominantly agricultural character, and less advanced in terms of their development but exhibiting conditions conducive to renewable energy development.
Purpose
Given the increasing longevity of the population, the consolidation of familial structures, and the scarcity of economic resources required to sustain an aging society, the Chinese government faces a complex and urgent challenge in effectively addressing the growing needs of older adults and establishing a long-term care services system that is both sustainable and equitable.
Patients and Methods
This study harnesses the comprehensive CLHLS data from 2011 to 2018 and utilizes the “Pilot Industrialization of Old-Age Service in a Market-Oriented Way” policy as a quasi-natural experiment. Employing the Difference-in-Differences (DID) method, our study aims to evaluate the impact of industrializing older adult care services on the physical and mental health outcomes of older adults in China.
Results
The findings strongly indicate that the government’s adoption of a market-driven fiscal approach within its policies, aimed at attracting social capital and fostering the industrialization of older adult care services, positively influences the physical and mental well-being of the aged population. Furthermore, through heterogeneity analysis, it becomes evident that the health promotion effect is particularly pronounced among older individuals living without a spouse, lacking family care from children or grandchildren, or residing in financially underdeveloped regions.
Conclusion
In summary, these results underscore the potential efficacy of employing financial policy instruments to facilitate the industrialization of older adult care services, thereby advancing the promotion of a society characterized by healthy aging and ensuring equitable health outcomes for older people.
This thesis focuses on the unexplored issues of the relationship between public and private venture capitalists in France. This research mobilizes agency and incentive theory as well as cognitive theories of governance, in particular the Resource Based View. These theoretical frameworks are considered from the perspective of complex network theory and public-private partnerships. Our empirical analysis is divided into three stages. After a qualitative study with an exploratory dimension, carried out with venture capitalists and actors of innovation networks, we carried out a first quantitative study covering the period from 2005 to 2019, based on 516 financings carried out in 283 French companies. Subsequently, we conducted a second quantitative study that counts 585 financings carried out in 322 companies over the same period. The first part of this study focuses on deals completed in the early stages of financing: Seed, Early and Expansion; the second, focuses on those completed in the Development stage. The objective here is twofold: first, to study the effects of syndication financing and also of public and private actors on the innovation of companies, measured here by R&D expenditures and patent filings (Input and Output). The other purpose of this research is to observe whether the issues of innovation financing in terms of financial performance are the same for private and public venture capital. To test all our hypotheses, we use a dynamic panel approach (OLS, fixed effects, MMG).The first part of our study allows us to propose a more precise definition of the relationship between public and private venture capitalists and to reveal the existence of a specific phenomenon linked to the presence and intervention of public actors, identified as a crowding-out effect. The second and third parts of this work highlight several other results. First of all, the choice of using variables dependent on R&D expenditure and patent registrations in our study is of interest. Indeed, these measures of innovation make it possible to distinguish between the financing methods specific to certain types of actors. Thus, this study shows that the financial resources granted by public or private investors as leader of a syndication can have an influence on the innovation strategy of firms. This doctoral work proposes a contribution by highlighting the role played by public and private actors in the governance of private equity-backed firms. Indeed, the overlap between results confirms the interest for a private equity firm to position itself as a leader within a syndication. This research also indicates that the investment strategy pursued in mixed syndication seems to be the most efficient. Finally, our results show that the use of mixed syndication financing led by a private equity investor tends to "optimize" both the effects on innovation and the financial performance of the firm. In the opposite case, we observe that the financing of public capital-investors has a negative and significant effect on patent filings and on the ROA variable. In the end, our conclusions are nuanced, highlighting investment logics between public and private venture capitalists that are neither perfectly similar nor completely opposed, but complementary under certain conditions.
Aiming at improving the enterprise performance and venture capital management, the edge computing is combined with blockchain technology in the construction of the supply chains so as to improve the stability and security of raw material supply chains of venture capital enterprises. Firstly, the relationships among venture capital, enterprise performance, and supply chain integration are analyzed, and the positive impacts of optimization and innovation of supply chain technology and venture capital on enterprise performance improvement are discussed. Secondly, the edge computing and blockchain technology are adopted to optimize the supply chain, and a protocol model is established to improve the security of supply chain information transmission. In addition, the supply chain Internet of Things (IoT) system is designed in layers based on blockchain and edge computing technology. Finally, the designed protocol model is applied to the supply chain and the supplier performance is evaluated by using the fuzzy analytic hierarchy process (FAHP). The results show that the gas value of the designed protocol model is stable at 104,000∼116,000 in blockchain transactions, and the execution time of a single blockchain transaction fluctuates between 4,300 and 6,100 ms. Therefore, the designed protocol model can effectively ensure the security of supply chain data during the transmission. The evaluation results of supplier performance suggest that the cooperative relationship between venture capital enterprises and suppliers is affected by many factors. Optimizing the supply chain structure and production activities can improve the performance of suppliers and venture capital enterprises. This work provides a reference for analyzing the performance of blockchain technology on venture capital enterprises and suppliers.
This study focuses on the estimation of the “monitoring effect,” which is one of the two sources of value creation (in addition to the “screening effect”), through venture capital (VC) investment. To estimate the monitoring effect excluding the screening effect, this study simultaneously uses the matching and difference-in-differences (DiD) techniques, to overcome the weaknesses of each approach. The analysis confirms the significance of the monitoring effect in enhancing various performance variables, such as corporate growth, job creation, and innovation capacity. In particular, the size of this effect is maximized in mid-stage companies and high-tech industries. The results of this study can help policymakers who aim to foster the government-led VC industry by providing them with insights regarding the importance of monitoring and identifying the characteristics of companies that can maximize the monitoring effect.
Venture capital contributes to the solution of such an important task as the moving the Russian economy to an innovative way of development; the use of venture investments might contribute to expanded reproduction that is necessary for the formation process of an innovative model of economic growth. There is a comprehensive analysis of Russian venture investments market foundation and development in the article. The purpose of the article that authors had are a research of key theoretical and methodological approaches to the study of venture capital as a factor of innovative companies funding as well as development of practical recommendations for improving an institutional environment. On the basis of an evolutionary approach to the analysis the key stages in the development of the Russian venture capital market were showed. Further trends of its development were identified. Statistical and mathematical methods formed the basis for determining the factors slowing down the growth of the venture capital market in Russia, which made it possible to propose a number of measures to eliminate its institutional imperfections. A special place in the article is occupied by the analysis of various methods of raising funds in the venture capital market including an IPO process. Innovative ways of financing venture capital projects implemented using digital technologies on the basis of crowdfunding platforms are studied.KeywordsCrowdfunding platformsInnovationVenture capitalVenture fundsVenture investment
Venture capital funding is a type of venture capital financing, which in turn is a form of private capital. Investors provide investments to start-up companies that acquire long-term growth potential as a result. The problems of venture capital financing in Russia are associated with many factors, for example, with the relative “youth” of this industry. In Russia, the first venture capital funds began to be created only in 1994 on the initiative of the European Bank for Reconstruction and Development (EBRD). Since venture financing involves the provision of investments to start-up companies, it is necessary to consider this mechanism also as a tool for the development and support of the small and medium entrepreneurship, and, in particular, technological sector. For most Western countries, the state of the SME sector reflects the level of economic development and business activity of the population. Another problem is related to the fact that the Russian economy is mainly raw-material, so it significantly depends on the volume of resource extraction and their cost. Therefore, the development of venture capital investment is becoming one of the priority areas of innovation policy, which determines the relevance of this article. This study examines the main aspects of venture capital funding of companies, as well as the main current trends and parameters of the Russian venture capital market.KeywordsInnovative entrepreneurshipHigh-tech sectorVenture capitalVenture capital funding
Due to externalities and market failure, innovation activities are facing insufficient investment. Venture capital guidance funds (VCGFs) are an important policy implemented by China's government to guide private capital to participate in innovation and entrepreneurship activities, and it can have an important impact on scientific and technological innovation. Based on the panel data of 285 cities in China, this paper empirically analyzed the impact of VCGFs on innovation and its mechanism. VCGFs can significantly promote urban innovation and this role is sustained for three years following VCGF establishment. Further research shows that VCGFs do not have a direct impact on innovation but promote innovation by promoting the accumulation of innovative talent and capital, and the capital accumulation effect of VCGFs is the main path through which they promote urban innovation. Corruption is also a factor that restricts the effectiveness of an innovation policy. Thus, China's top‐down anticorruption campaigns can strengthen the ability of VCGFs to promote urban innovation. This paper opens the black box to show the mechanism through which VCGFs impact urban innovation, affirms the important role of the government in the regional innovation system, and clarifies the debate on government innovation policy.
Managing environmental sustainability has become a critical challenge and an essential agenda for academics and corporations alike. This study conducted evidence-based research to explore whether it is possible to maintain a balance between environmentalism and consumerism in a capitalist society. A triangulated approach is followed by combining systematic literature review (SLR) and text mining for cross-validation, thus, limiting subjective bias. The findings suggest that, although, it is possible to achieve a balance in the long run but this necessitate enormous amount of efforts and resources due to the complexity and paradoxical nature of environmentalism and consumerism coupled with the current way of capitalist societies' life. Building on the findings and the Operations Management Input-Transformation-Output model, a research framework is proposed. The proposed framework suggests that to keep a balance between environmentalism and consumerism in a capitalist society, a progressive and transformational change could be instrumental for a viable solution. Finally, building on current gaps in the research domain, six future research directions are proposed to carry forward the notion of environmentalism and consumerism in a capitalist society.
Under the background of supply side structural reform of the land market, this paper constructs a location choice behavior model of reduction from the perspective of rent maximization, explores how these factors affect the industrial land reduction location choice. We consider 100 industrial parcels in the suburbs of Shanghai as an example to analyze. It is found that the enterprises in development zones have greater advantages in economies of scale, labor productivity, pollution treatment, and tax payments than enterprises outside the development zone, so the low‐efficiency enterprises outside the development zones are the preferred objects of reduction. The suburban areas have a stronger attraction than the outer suburbs in the process of location choice, and the closer the city center is, the more obvious the location advantages of enterprises in development zones. Under the control of the total amount of construction land, the land use structure should be constantly adjusted, inefficient enterprises outside the development zone should be preferred to the reduction object, and the government should actively guide enterprises to enter the development zones.
This paper investigates the screening and certification abilities of government-managed venture capital (GVC) firms in Europe. Using a sample of European high-tech entrepreneurial companies, we show that GVC funding increases the likelihood that companies will receive private venture capital (PVC). Moreover, GVC-funded companies that have received a first round of PVC are at least as likely as other PVC-backed companies to receive a second round of PVC or to be listed or acquired. After ruling out alternative explanations, we interpret these results as positive evidence of GVC firms’ abilities in selecting promising companies and certifying them to PVC investors.
Frequent and open interaction between venture capitalists (VCs) and entrepreneurs is necessary for venture capital investments to occur. Increasingly, these investments are made across jurisdictions. The vast majority of these cross-border investments are carried out in a syndicate of two or more VCs, indicating the effects of intra-industry networks needing further analysis. Using China as a model, we provide a novel multidimensional framework to explain cross-border investments in innovative ventures across developed and emerging economies. By analyzing a unique international dataset, we examine worldwide venture capital investment flows from 2000–2012 and consider the effects of geographical, cultural, and institutional proximity as well as institutional and relational trust. We find trust to mitigate the negative effects of geographical and cultural distance, where institutional trust is more relevant for investments in emerging economies, and relational trust is more relevant for investments in developed economies.
Governments around the world have set up governmental venture capital (GVC) funds, and are increasingly doing so, with the aims of fostering the development of a private venture capital industry and to alleviate the equity capital gap of young innovative firms. The rationale and the appropriateness of these programs is controversial. In this paper, we borrow from the recent literature on entrepreneurial finance to document the evolution and to compare the effects of the different types of governmental support. In contrast with a lack of success in some countries, there have been successful GVC initiatives, such as the Australian Innovation Investment Fund. Consequently, the proper design of the investment processes of GVC funds is an urgent topic for scholars and policy makers.
We study the investment strategies of different types of Venture Capital investors (VCs) using a unique dataset that includes 1,663 VC first investments made by 846 investors in 737 young high-tech entrepreneurial ventures located in seven European countries between 1994 and 2004. Using a transformed Balassa index, we analyze the relative investment specialization of independent VCs, corporate VCs, bank-affiliated VCs and governmental VCs along several dimensions that characterize investments (e.g., syndication, duration and exit mode) and investee companies (e.g., industry of operation, age, size, development stage, location and distance from investor’s premises at the time of the investment). Our findings indicate that VC types in Europe differ markedly in their patterns of investment specialization, especially governmental VC on the one side and private VC on the other. We compare our findings with evidence from the USA and find some interesting differences, notably regarding independent and governmental VCs.
Venture Capital (VC) and Private Equity (PE) investors play a different role in their portfolio companies. We argue that this will translate in a recognizable difference in the investment sensitivity to cash flows of portfolio companies and its evolution after the first investment round. We hypothesise that VC, thanks to its ability in overcoming asymmetries in information, will entail a reduction in the financial constraints which hampered the grow of investee firms. We predict, instead, a greater dependency of investments to cash flow for PE-backed companies, driven by the renewed interest for growth of their management combined with higher leverage. We find evidence confirming our hypotheses on a large panel of Spanish unlisted firms in low and medium technology sectors, where both VC and PE firms are active.
Emerging economies are characterized by fundamental and comprehensive institutional transformations as their economies begin to mature. How venture capitalist functions in environments that differ so fundamentally from those of the mature markets where venture capital was initially developed has only begun to be addressed. This article builds a framework to further the understanding of venture capital practice in emerging markets. Specific attention is focused on the impact of networks in the model, in particular, how networks and other informal institutions can act to supplement or replace formal institutions when they are weak. The article goes on to examine what the implications are for venture capital and the role of informal institutions in emerging economies as formal institutions become more established. The research and resulting model is grounded in 65 semistructured interviews with venture capitalists in emerging economies around East Asia. This article contributes to the literature by drawing attention to the impact of networks and changing institutional environments on venture capital during different phases of an economic transition process in emerging economies. The findings have implications for understanding institutional impact on venture capital activity as well as entrepreneurs and entrepreneurial ventures that seek venture capital financing in emerging economies.
Examining an increasingly prevalent but under-researched phenomenon, cross-border venture capital investments, it is observed that local venture capitalists typically invest first, followed by foreign venture capitalists in later rounds. A model is developed that explains the role of a domestic venture capital investor in attracting foreign investors and which also accounts for the impact of various circumstances on the importance of this role. In our model based on analysis of nine cross-border venture capital-backed companies, local venture capitalists have several important roles in increasing the venture's cross-border investment readiness including advice to operational management and contributing contacts and local market knowledge. The importance of these roles is mitigated if the entrepreneurial team is highly experienced or if the home market is not important for the venture. The prominence of the local investor has signalling value. Finally, the local investor's international social capital facilitates the formation of cross-border syndicates. Overall, the model developed in the paper contributes to a better understanding of cross-border venture capital and in particular to the division of labour between domestic and foreign venture capitalists in international venture capital syndicates. The paper also contributes to the emerging literature on international social capital.
Venture capital (VC) has become an international phenomenon, and VC firms are a specific kind of service firm whose characteristics have distinctive implications for international behaviour. There is now a disparate body of research on international aspects of VC across a number of disciplines comprising finance, economics, strategy, entrepreneurship, international business and economic geography. A novel aspect of this paper is that we review and synthesize this disparate literature. A number of research gaps and limitations in the theoretical and methodological approaches involved in previous studies are identified and suggestions made for further research. We show that the vast majority of the literature relates to cross-country comparisons; that is, macro-level comparisons of VC industries across different countries and micro-level comparisons of VC behaviour across countries. From our review of the literature, we argue that an under-researched area concerns the influence of institutional contexts, especially the role of social networks and cultures. Furthermore, our review of the literature indicates that there is a major research gap in relation to work dealing with the crossing of country borders by VC firms. We suggest that resource-based, capabilities, institutional and network theories may be offer insights to further our understanding of the behaviour of VC firms in this area.
This paper analyzes the relationship between public and private sources of venture capital in Europe and the development of the industry, controlling for characteristics of the legal systems, in 15 European countries over the period 1990–1996. Large public participation is correlated with smaller VC industries, but analyses do not support the view that public venture capitalists are acting to seed the industry or that are they crowd-out private funds. On the contrary, public involvement seems to cause greater amounts of money to be invested in the industry as a whole. We argue that the effects of public intervention, whatever the motives, are real and probably result from demonstrating/sanctioning the social merit of venture capital and from signaling an enduring commitment to it.
In recent years, venture capital firms have increasingly turned to foreign countries in search of investment opportunities. The cross-border expansion of venture capital firms presents an interesting case of internationalization, because they are at variance with both conventional portfolio and direct investment models. Given the specific nature of venture capital investing, a new theoretical perspective is needed to understand foreign venture capital investments. This paper contributes to international business research by examining the features of the institutional environment that influence venture capital firms’ foreign market entry decisions, and how their effect changes as firms acquire experience. We report results on 216 American venture capital firms potentially investing in 95 countries during the 1990–2002 period. We find that venture capital firms invest in host countries characterized by technological, legal, financial, and political institutions that create innovative opportunities, protect investors’ rights, facilitate exit, and guarantee regulatory stability, respectively. We also find that as firms gain more international experience, they are more likely to overcome constraints related to these institutions.
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. Copyright Kluwer Academic Publishers 2001
The difference and system generalized method-of-moments estimators, developed by Holtz-Eakin, Newey, and Rosen (1988, Econometrica 56: 1371–1395); Arellano and Bond (1991, Review of Economic Studies 58: 277–297); Arellano and Bover (1995, Journal of Econometrics 68: 29–51); and Blundell and Bond (1998, Journal of Econometrics 87: 115–143), are increasingly popular. Both are general estimators designed for situations with “small T, large N″ panels, meaning few time periods and many individuals; independent variables that are not strictly exogenous, meaning they are correlated with past and possibly current realizations of the error; fixed effects; and heteroskedasticity and autocorrelation within individuals. This pedagogic article first introduces linear generalized method of moments. Then it describes how limited time span and potential for fixed effects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it describes how to apply these estimators with xtabond2. It also explains how to perform the Arellano–Bond test for autocorrelation in a panel after other Stata commands, using abar. The article concludes with some tips for proper use.
We examine cross-border syndication in investments led by foreign venture capitalists (VCs) focusing on the potential correlation between cultural differences and the formation of VC syndicates. Contrary to the risk-sharing motive, we find that a greater cultural disparity between the countries of investors and their companies is actually associated with smaller VC syndicates. This is driven largely by lesser local investor representation in foreign VC-led syndicates. However, certain cultural disparity-related syndication strategies, such as the involvement of locally experienced foreign VCs or syndicate members from culturally similar countries, are associated with greater presence of local VCs who provide valuable monitoring services. We further show that these culture-linked syndication approaches are significantly correlated with VC financing and monitoring strategies in cross-border investments and their eventual success.
Other books present corporate finance approaches to the venture capital and private equity industry, but many key decisions require an understanding of the ways that law and economics work together. This revised and updated 2e offers broad perspectives and principles not found in other course books, enabling readers to deduce the economic implications of specific contract terms. This approach avoids the common pitfalls of implying that contractual terms apply equally to firms in any industry anywhere in the world. In the 2e, datasets from over 40 countries are used to analyze and consider limited partnership contracts, compensation agreements, and differences in the structure of limited partnership venture capital funds, corporate venture capital funds, and government venture capital funds. There is also an in-depth study of contracts between different types of venture capital funds and entrepreneurial firms, including security design, and detailed cash flow, control and veto rights. The implications of such contracts for value-added effort and for performance are examined with reference to data from an international perspective. With seven new or completely revised chapters covering a range of topics from Fund Size and Diseconomies of Scale to Fundraising and Regulation, this new edition will be essential for financial and legal students and researchers considering international venture capital and private equity. An analysis of the structure and governance features of venture capital contracts. In-depth study of contracts between different types of venture capital funds and entrepreneurial firms. Presents international datasets from over 40 countries around the world. Additional references on a companion website. Contains sample contracts, including limited partnership agreements, term sheets, shareholder agreements, and subscription agreements.
If partnering with local firms is an intuitive strategy with which to mitigate uncertainty in foreign ventures, then why don't organizations always partner with local firms, especially in uncertain settings? We address this question by unbundling the effects of uncertainty in foreign ventures at the venture and country levels. We contend that, while both levels increase the need for partnering with local firms in foreign ventures, country-level uncertainty increases the difficulty of partnering with local firms and decreases the likelihood of such partnerships. We also posit that experiential learning helps firms manage the two types of uncertainty, and thereby reduces the need for partnering—yet, experience in the host country makes partnering more feasible and increases the likelihood of such partnerships. To test our hypotheses, we conceptualize the decision to partner with a local firm in a foreign venture as a multilayered decision, and model it accordingly. Using a global sample of venture capital investments made between 1984 and 2011, we find support for the distinct effects of venture-and country-level uncertainty as well as for corresponding levels of experiential learning. These findings have implications for the literature on cross-border venture capital investment and international business in general.
We propose that home country network advantages shape firms' foreign expansion. We argue that a social status advantage is transferable from one market to another as a signal of quality but that a brokerage advantage is more context-specific and difficult to transfer. Furthermore, the value of network advantages changes as networks evolve. Data on the foreign market entries of 1,010 U.S. venture capital firms provide robust support for the effects of social status. We also find that brokerage reduces foreign entry in the absence of home country partners in a new market and increases it when partners are already operating in that market.
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.
We investigate the implications of venture capital (VC) investor type (government or private) on the operating efficiency of a sample of 515 Belgian portfolio firms up to 3 years after the investment. We find that the government VC-backed firms display significant reductions in productivity. No significant differences in efficiency are found in firms backed by private VC compared with their non-VC-backed peers. Finally, significant reductions in efficiency exist in targets of government VC compared to their non-VC-backed peers.
Venture capitalists (VCs) face additional risks and costs when they invest in firms located in geographically remote countries or in countries whose institutions differ substantially from those in their home countries. Our study considers foreign VCs ' prospect of overcoming these investment obstacles as a rationale for syndicating with local VCs from the investment countries. Through such syndication, foreign VCs may obtain easier access to investment opportunities, improve the risk allocation and face lower information costs. Using a novel dataset of worldwide deals, we draw a diametrically opposed picture for the two kinds of distance: our results lend support to the conjecture that the obstacles of great institutional distance cannot be overcome with the help of a local VC, whereas those of great geographical distance can.
The global strategy of multinational enterprises (MNEs) from China started to emerge recently. While sizable components of their strategy and behavior are consistent with what we observe of MNEs from other countries, Chinese MNEs are characterized by three relatively unique aspects: (1) the previously underappreciated role played by the home country governments of MNEs as an institutional force, (2) the challenge of going abroad in the absence of significantly superior technological and managerial resources, and (3) the rapid adoption of (often high-profile) acquisitions as a primary mode of entry. Overall, this article argues that these three relatively unique aspects of emerging multinationals from China will have significant ramifications for future theory building and empirical efforts of the global strategy research community. Copyright © 2012 Strategic Management Society.
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 variables 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; v) the distance between the VC investor and the target company.
Using a new European Union-sponsored firm-level longitudinal dataset, we assess the impact of
government-managed (GVC) and independent venture capital (IVC) funds on the sales and employee
growth of European high-tech entrepreneurial firms. Our results show that the main statistically robust
and economically relevant positive effect is exerted by IVC investors on firm sales growth. Conversely,
the impact of GVC alone appears to be negligible. We also find a positive and statistically significant
impact of syndicated investments by both types of investors on firm sales growth, but only when led
by IVC investors. Our results remain stable after controlling for endogeneity, survivorship bias, reverse
causality, anticipation effects, legal and institutional differences across countries and over time and are
stable with respect to potential non-linear effects of age and size of entrepreneurial firms. Overall, our
analysis casts doubt on the ability of governments to support high-tech entrepreneurial firms through a
direct and active involvement in VC markets.
This paper investigates the effects of public ownership on the investment strategy of hybrid VC funds. We exploit a unique dataset containing data for all of the venture capital funds in Europe that received financial support from the European Investment Fund (EIF) during the years 1998–2007. The dataset includes 179 VC funds that invested in 2482 companies. We find that the level of public ownership shows a weak negative correlation with the likelihood of observing a write-off and that a higher public share is associated with a longer duration for the investment. The latter effect is more relevant for those investments that generate intermediate financial returns. The results are robust to the introduction of controls at the target firm level and for financial market conditions.
We study how public policy can contribute to increase the share of early stage and high-tech venture capital investments, thus helping the development of active venture capital markets. A simple extension of the seminal model by Holmstrom and Tirole (1997) provides a theoretical base for our analysis. We then explore a unique panel of data for 14 European countries between 1988 and 2001. We have several novel findings. First, the opening of stock markets targeted at entrepreneurial companies positively affects the shares of early stage and high-tech venture capital investments; reductions in capital gains tax rates have a similar, albeit weaker, effect. Second, a reduction in labor regulation results in a higher share of high-tech investments. Finally, we find no evidence of a shortage of supply of venture capital funds in Europe, and no evidence of an effect of increased public R&D spending on the share of high-tech or early stage venture capital investments.
This study examines how private enterprises in emerging economies politically respond to government bureaucracy they face. With an emphasis on two political responses, engagement and influence, we propose that private enterprises react to bureaucracy differently, depending on their entrepreneurial traits, and this leads to different susceptibilities to bureaucracy. Our analysis of 9,123 private enterprises in 72 emerging economies suggests that political engagement and influence are positively associated with bureaucracy for all firms, but the levels of political engagement and influence vary according to a firm's entrepreneurial type (new vs. established venture; venture of entrepreneurial origin vs. other private) and governance (family vs. nonfamily; with vs. without government or foreign ownership). Firms in different groups of emerging economies also display some different propensities to political engagement and influence. Copyright © 2008 Strategic Management Society.
We investigate the investment behavior and exit performance of VCs that have pursued expansion outside their home locations, specifically, in Asia. Our findings indicate that, in the Asian VC markets, foreign VCs have relative advantages over local VCs in terms of size and experience while they are at a disadvantage in information collection and monitoring due to both geographic and cultural distances. When investing alone, foreign VCs are more likely to invest in more information-transparent ventures. Partnership with local VCs helps alleviate information asymmetry and monitoring problem and has positive implication for the exit performance of local entrepreneurial firms. Specifically, we find that after controlling for the endogeneity of selection, firms with both foreign and local VC partnership are about 5% more likely to successfully exit.
This article develops a framework for efficient IV estimators of random effects models with information in levels which can accommodate predetermined variables. Our formulation clarifies the relationship between the existing estimators and the role of transformations in panel data models. We characterize the valid transformations for relevant models and show that optimal estimators are invariant to the transformation used to remove individual effects. We present an alternative transformation for models with predetermined instruments which preserves the orthogonality among the errors. Finally, we consider models with predetermined variables that have constant correlation with the effects and illustrate their importance with simulations.
This paper analyses 280 Australian venture capital and private equity funds and their investments in 845 entrepreneurial firms over the period 1982–2005. I focus the analysis on the Innovation Investment Fund (IIF) governmental program, first introduced in 1997. In order to highlight the unique aspects of the IIF, I compare the properties of the Australian IIF program with government venture capital programs in Canada, the UK and the US. The IIF program is unique with a focus on partnering between government–private sector partnerships, as described herein. I analyse the performance of the IIF funds along several dimensions: the propensity to take on risk by investing in early stage and high-tech investments; the propensity to monitor and add value to investees through staging, syndication, and portfolio size per fund manager; and the exit success. For each of these evaluation criteria, I assess the performance of the IIF funds relative to other types of private equity and venture capital funds in Australia. The data analysed show – in both a statistically and economically significant way – that the IIF program has facilitated investment in start-up, early stage and high tech firms as well as the provision of monitoring and value-added advice to investees. Overall, therefore, the data are strongly consistent with the view that the IIF program is fostering the development of the Australian venture capital industry. However, the vast majority of investments have not yet been exited, and the exit performance of IIFs to date has not been statistically different than that of other private funds. Further evaluation of IIF performance and outcomes is warranted when subsequent years of data become available.
The paper studies the effects of tax policy on venture capital activity. Entrepreneurs pursue a single high risk project each but have no own resources. Financiers provide funds, covering investment cost plus an upfront payment, in exchange for a share in the firm. The contract must include incentives to enlist full effort of entrepreneurs. Venture capitalists also assist with valuable business advice to enhance survival chances. The paper develops a general equilibrium framework with a traditional and an entrepreneurial sector and investigates the effects of taxes on the equilibrium level of managerial advice, entrepreneurship and welfare. It considers differential wage and capital income taxes, a comprehensive income tax, progressive taxation as well as investment and output subsidies to the entrepreneurial sector.
In this paper, we examine a Canadian tax-driven venture capital vehicle known as the “Labour Sponsored Venture Capital Corporation” (LSVCC). As a theoretical matter, we suggest that the LSVCCs can be expected to have higher agency costs and lower profitability than private venture capital funds. We present data that is consistent with this view. The central question that we analyze, however, is whether the tax advantages conferred on LSVCCs have resulted in LSVCCs “crowding out,” or displacing other types of venture capital funds. Empirical analysis of our data (which covers the 1977–2001 period) is highly consistent with crowding out. The data suggest that crowding out has been sufficiently energetic as to lead to a reduction in the aggregate pool of venture capital in Canada, frustrating one of the key governmental goals underlying the LSVCC programs; namely, the expansion of the aggregate pool of capital. In the course of our analysis, we confirm the importance of macroeconomic factors (the performance of the stock market, real interest rates, and changes in real gross domestic product) in affecting the supply of and demand for venture capital. We also generate evidence that is consistent with the proposition that entrepreneurs in the market for venture capital prefer to incorporate their businesses federally, rather than provincially.
Estimation of the dynamic error components model is considered using two alternative linear estimators that are designed to improve the properties of the standard first-differenced GMM estimator. Both estimators require restrictions on the initial conditions process. Asymptotic efficiency comparisons and Monte Carlo simulations for the simple AR(1) model demonstrate the dramatic improvement in performance of the proposed estimators compared to the usual first-differenced GMM estimator, and compared to non-linear GMM. The importance of these results is illustrated in an application to the estimation of a labour demand model using company panel data.
Cross-border investments represent a substantial share of venture capital activities. We use a comprehensive dataset on investments worldwide to analyze the internationalization of venture capital financing. We postulate that cross-border activity is shaped by macroeconomic factors in the venture capitalists’ and the portfolio companies’ countries, as well as characteristics of the venture capitalists and the deals, which likely affect the costs and benefits of investing abroad. In order to analyze how country-specific, venture capitalist-specific and deal-specific factors affect cross-border activity, we use the country, venture capitalist and portfolio company perspectives. Our results suggest that factors capturing the benefits and costs of investing abroad determine international venture capital flows.
While the U.S. still accounts for about two-thirds of the world's total private equity fund-raising and investment, other countries have been adopting American practices and are experiencing significant growth in their private equity markets. In fact, a case can be made that a global market for venture capital and private equity is emerging, at least in Western Europe and North America, where venture markets are seeing significant convergence in funding levels, investment patterns, and realized returns. To date, however, the European Union has had little success in establishing community-wide commercial laws, taxation regimes, or corporate governance policies, so each country's private equity funds are organized in segmented national markets, and investment also tends to be largely localized. The Asian markets are even more fragmented: venture capital shows no sign of taking root in Japan, and China lacks the basic legal infrastructure needed to support a vibrant venture capital market. 2004 Morgan Stanley.
I propose a new measure of venture capital (VC) firm reputation and analyze its performance implications on private companies. Controlling for portfolio company quality and other VC-specific factors including experience, connectedness, syndication, industry competition, exit conditions, and investment environment, I find companies backed by more reputable VCs by initial public offering (IPO) capitalization share (based on cumulative market capitalization of IPOs backed by the VC), are more likely to exit successfully, access public markets faster, and have higher asset productivity at IPOs. Further tests suggest VCs' IPO Capitalization share effectively captures both VC screening and monitoring expertise. My findings have financial implications for limited partners and entrepreneurs regarding their VC-sorting activities.
Must policymakers seeking to replicate the success of Silicon Valley's venture capital market first copy other US institutions,
such as deep and liquid stock markets? Or can legislative reforms alone make a significant difference? In this paper, we compare
the economic and legal determinants of venture capital investment, fundraising, and exits. We introduce a cross-sectional
and time series empirical analysis across 15 countries and 14 years of data spanning an entire business cycle. We show that
liberal bankruptcy laws stimulate entrepreneurial demand for venture capital; that government programmes more often hinder
than help the development of private equity, and that the legal environment matters as much as the strength of stock markets.
Our results imply generalizable lessons for legal reform.
This paper considers the structure, governance and performance of a unique class of mutual funds that receives capital only
from individuals, and reinvests this contributed capital in private companies, as opposed to traditional mutual funds that invest in publicly traded companies. It considers the particular class of mutual funds known as Canadian Labour-Sponsored Investment Funds (LSIFs).
In contrast to expectations, it is shown that LSIFs have artificially low betas, returns that have significantly underperformed
industry benchmarks, average management expense ratios greater than 4%, and have collectively accumulated $Can10 billion (£4.3
billion) as at 2005 since their statutory inception in various Canadian jurisdictions in the 1980s and 1990s. It is shown
that these incongruous data are directly attributable to the LSIF statutory governance structure.
While policymakers often assume venture capital has a profound impact on innovation, that premise has not been evaluated systematically. We address this omission by examining the influence of venture capital on patented inventions in the United States across twenty industries over three decades. We address concerns about causality in several ways, including exploiting a 1979 policy shift that spurred venture capital fundraising. We find that the amount of venture capital activity in an industry significantly increases its rate of patenting. While the ratio of venture capital to R&D has averaged less than 3% in recent years, our estimates suggest that venture capital accounts for about 15% of industrial innovations. We address concerns that these results are an artifact of our use of patent counts by demonstrating similar patterns when other measures of innovation are used in a sample of 530 venture-backed and non-venture-backed firms.
Recently public efforts to finance small high-technology firms have proliferated. We review the motivations for these efforts and make some preliminary observations about their design. We explore the underlying challenges that the financing of young growth firms poses, the ways that specialised financial intermediaries address them, and the rationales for public efforts to finance these companies. The final section makes a set of observations about the ways in which the structure of these efforts can most effectively complement private sector activity. A frequent fault in programme design is the presumption that technological criteria can be divorced from business considerations when evaluating firms. Copyright Royal Economic Society 2002
Observations on N cross-section units at T time points are used to estimate a simple statistical model involving an autoregressive process with an additive term specific to the unit. Different assumptions about the initial conditions are (a) initial state fixed, (b) initial state random, (c) the unobserved individual effect independent of the unobserved dynamic process with the initial value fixed, and (d) the unobserved individual effect independent of the unobserved dynamic process with initial value random. Asymptotic properties of the maximum likelihood and “covariance” estimators are obtained when T → ∞ and when N → ∞. The relationship between the pseudo and conditional maximum likelihood estimators is clarified. A simple consistent estimator that is independent of the initial conditions and the way in which T or N → ∞ is also suggested.
When can government venture capital funds bridge the equity gap?
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Disclosure, venture capital and entrepreneurial spawning
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What lures cross-border venture capital inflows
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and the United Kingdom-building momentum in venture capital across Europe
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