Why do Some Venture Capitalists Cash Out While Others Retain their Stakes? -- How Fund Dynamics Influence Venture Capital Exit Decisions

2013 ◽  
Author(s):  
Maximilian Schmidt ◽  
Carolin Bock
Keyword(s):  
Venture Capital ◽  
Venture Capitalists ◽  
Exit Decisions

scholarly journals How time-inconsistent preferences influence venture capital exit decisions? A new perspective for grandstanding

2022 ◽  
Vol 8 (1) ◽  
Author(s):  
Yanzhao Li ◽  
Ju-e Guo ◽  
Shaolong Sun ◽  
Yongwu Li
Keyword(s):  
Venture Capital ◽  
Time Consistency ◽  
Time Inconsistency ◽  
Venture Capitalists ◽  
Time Flow ◽  
Advance Research ◽  
Exit Decisions ◽  
New Perspective ◽  
Time Inconsistent ◽  
Time Point

AbstractConsidering that the assumption of time consistency does not adequately reveal the mechanisms of exit decisions of venture capital (VC), this study proposes two kinds of time-inconsistent preferences (i.e., time-flow inconsistency and time-point inconsistency) to advance research in this field. Time-flow inconsistency is in line with the previous time inconsistency literature, while time-point inconsistency is rooted in the VC fund’s finite lifespan. Based on the assumption about the strategies guiding future behaviors, we consider four types of venture capitalists: time-consistent, time-point-inconsistent, naïve, and sophisticated venture capitalists, of which the latter three are time-inconsistent. We derive and compare the exit thresholds of these four types of venture capitalists. The main results include: (1) time-inconsistent preferences accelerate the exits of venture capitalists; (2) the closer the VC funds expiry dates are, the more likely time-inconsistent venture capitalists are to accelerate their exits; and (3) future selves caused by time-flow inconsistency weaken the effect of time-point inconsistency. Our study provides a behavioral explanation for the empirical fact of young VCs’ grandstanding.

Collaboration Among Silicon Valley Venture Capitalists

2019 ◽  
pp. 200-219
Author(s):  
Lyda Bigelow ◽  
Jennifer Kuan ◽  
Kyle Mayer
Keyword(s):  
Venture Capital ◽  
Regulatory Focus ◽  
Regional Differences ◽  
Silicon Valley ◽  
Psychological Effects ◽  
Venture Capitalists ◽  
Regulatory Focus Theory ◽  
Industry Clusters ◽  
Entrepreneurial Ventures ◽  
Point Of Entry

Regional differences among industry clusters have long been a puzzle, especially when performance differences are significant. This chapter examines the case of venture capital investing, in which Silicon Valley differs from the rest of the world despite attempts to imitate its model. The point of entry in this chapter is the contract between venture capitalist and entrepreneur. Although such contracts have been analyzed in other research, this chapter argues that the psychological effects of different contract styles are of primary importance to innovative outcomes of entrepreneurial ventures. Thus, it argues that regulatory focus theory, which considers the psychological effects of contracting, is essential to understanding differences in practice and outcomes in venture capital clusters.

scholarly journals Innovative start-ups and young entrepreneurs: Definition of venture capital and findings from Switzerland

2017 ◽  
Vol 7 (1) ◽  
pp. 75-81
Author(s):  
Simon Zaby
Keyword(s):  
Venture Capital ◽  
Success Factors ◽  
Total Sample ◽  
Venture Capitalists ◽  
Flow Of Funds ◽  
Start Up ◽  
Capital Financing ◽  
Proper Definition ◽  
Definition Of ◽  
Start Ups

This paper aims to investigate success factors of innovative start-up firms from the perspective of young start-up managers. Which key factors did they experience before and since the foundation of their company? The experience from the quite young Swiss start-up scene pro-vides important insights to entrepreneurs and policy-makers in emerging countries that cur-rently face the necessity of building up a start-up environment. One part of the data has been collected by the author, the other part originates from the Swiss Venture Capital Database (total sample size: 306). The results show a significant role of venture capital financing for the success of innovative start-ups. Interestingly, this is to some extent because the start-ups see various additional benefits from venture capitalists involved in their firm. Thus, the findings shed new light on a proper definition of venture capital that should not solely focus on the flow of funds.

scholarly journals Exit Decision of Venture Capital Based on Linear Contract in Continuous Time: IPO or M&A

Complexity ◽  
2020 ◽  
Vol 2020 ◽  
pp. 1-19
Author(s):  
Ding Chuan ◽  
Dahai Li ◽  
Meishu Ye
Keyword(s):  
Social Welfare ◽  
Venture Capital ◽  
Interest Rates ◽  
Initial Public Offering ◽  
Continuous Time ◽  
Production Efficiency ◽  
Venture Capitalists ◽  
Social Welfare Maximization ◽  
Incentive Problem ◽  
Public Offering

Based on the assumption that the long-term value of a venture capital satisfies the algebraic Brownian motion, we develop a continuous-time exit model of venture capital under different exit modes, namely, initial public offering (IPO) and mergers and acquisitions (M&A). The employee incentive problem is analyzed jointly with the exit decision of the firm in terms of the exit timing and the exit mode. Further, the problem of capital exit is considered from two perspectives, namely, optimal venture capital and social welfare maximization, and the differences between these exit decisions are compared. Our model predicts that the timing of an IPO, the purpose of which is to maximize the utility of the capitalists, lags behind the exit timing, whose purpose is to maximize social welfare. Using a numerical analysis, this paper also proves that increasing the production efficiency, lowering the interest rates, and improving risk management can make the exit decision of venture capitalists converge with that of maximizing social welfare.

Venture Capital Communities

2019 ◽  
Vol 55 (2) ◽  
pp. 621-651 ◽  
Author(s):  
Amit Bubna ◽  
Sanjiv R. Das ◽  
Nagpurnanand Prabhala
Keyword(s):  
Machine Learning ◽  
Venture Capital ◽  
Computational Methods ◽  
Small Groups ◽  
Early Stage ◽  
Spatial Location ◽  
Venture Capitalists ◽  
Learning Tools ◽  
Physical Sciences

Although venture capitalists (VCs) can choose from thousands of potential syndicate partners, many co-syndicate with small groups of preferred partners. We term these groups “VC communities.” We apply computational methods from the physical sciences to 3 decades of syndication data to identify these communities. We find that communities comprise VCs that are similar in age, connectedness, and functional style but undifferentiated in spatial location. Machine-learning tools classify communities into 3 groups roughly ordered by their age and reach. Community VC financing is associated with faster maturation and greater innovation, especially for early-stage firms without an innovation history.

scholarly journals Influence of Venture Capital and Knowledge Transfer on Innovation Performance in the Big Data Environment

2019 ◽  
Vol 12 (4) ◽  
pp. 188 ◽  
Author(s):  
Chuanrong Wu ◽  
Xiaoming Yang ◽  
Veronika Lee ◽  
Mark E. McMurtrey
Keyword(s):  
Big Data ◽  
Knowledge Transfer ◽  
Venture Capital ◽  
New Product ◽  
User Preferences ◽  
Innovation Performance ◽  
Venture Capitalists ◽  
New Knowledge ◽  
Data Environment ◽  
Start Ups

Technological innovation requires large investments. Venture capital (VC) is a prominent financial source for innovative start-ups. A venture capitalist will inevitably transfer knowledge to facilitate the innovation of a firm while monitoring and advising its portfolio companies. Only when a firm has its own valuable new knowledge and high growth potential would venture capitalists select it. At the same time, big data knowledge, such as customer demands and user preferences, is also important for the new product development of a firm in the big data environment. Therefore, private knowledge transferred from venture capitalists, new knowledge developed independently by a firm itself, and big data knowledge are the three main types of knowledge for venture-backed firms in the big data environment. To find the influences of VC and knowledge transfer on the innovative performance of venture-backed firms, a model of maximizing the present value of the expected profit of new product innovation performance of a venture-backed firm in the big data environment is presented. The model can help venture capitalists to determine the scale of investment and the optimal exit time and predict the internal rate of return (IRR). This model can also help innovative start-ups to illustrate the value and prospects of a project to attract investment in their business prospectus.

scholarly journals Private equity and venture capital in South Africa: A comparison of project financing decisions

2013 ◽  
Vol 16 (3) ◽  
pp. 258-278 ◽  
Author(s):  
David Portmann ◽  
Chipo Mlambo
Keyword(s):  
South Africa ◽  
Venture Capital ◽  
Private Equity ◽  
Venture Capitalists ◽  
Project Financing ◽  
Financing Decisions ◽  
Start Up ◽  
Risk Appetite ◽  
Investment Opportunities ◽  
Venture Capital Firms

This paper investigates the manner in which private equity and venture capital firms in South Africa assess investment opportunities. The analysis was facilitated using a survey containing both Likert-scale and open-ended questions. The key findings show that both private equity and venture capital firms rate the entrepreneur or management team higher than any other criterion or consideration. Private equity firms, however, emphasise financial criteria more than venture capitalists do. There is also an observable shift in the investment activities away from start-up funding, towards later-stage deals. Risk appetite has also declined post the financial crisis.

scholarly journals The Impact of Venture Capital on the Growth of Small- and Medium-Sized Enterprises in Agriculture

2020 ◽  
Vol 2020 ◽  
pp. 1-8
Author(s):  
Junjuan Du ◽  
Zheng-Qun Cai
Keyword(s):  
Venture Capital ◽  
Evaluation Model ◽  
Multivariate Regression Analysis ◽  
Venture Capitalists ◽  
Enterprise Growth ◽  
Market Opportunities ◽  
Using Data ◽  
Entrepreneurial Activities ◽  
The Impact

Small- and medium-sized enterprises (SMEs) are considered to have potential innovation capabilities and can create new market opportunities. Venture capital can financially support entrepreneurial activities for economic growth and governs and nurtures the growth of the SMEs. The aim of this study is to investigate the influence mechanism of venture capital on the development of SMEs in agri-food industry. Based on the enterprise growth theory, this study constructed an evaluation model, consisting of technological innovation, profitability, development capability, and solvency, to examine the effect of venture capital on the growth of agricultural SMEs. Using data of 40 agricultural SEMs from the SME and ChiNext boards in China, the empirical analysis has been conducted with the multivariate regression analysis method. The results show that the venture capital can significantly improve the technology innovation, profitability, and growth ability of SMEs. For the solvency of SMEs, the promoting role of venture capital is not obvious. Finally, the practical implications of this study for venture capitalists, entrepreneurs, and regulators are discussed.

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