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Matthias Eckermann analyzes how venture capitalists (VCs) integrate information efficiency considerations into their exit strategies. He shows that VCs adopt specific strategies to cope with information gaps upon exit in terms of timing, exit vehicles and promotion efforts. On this basis he develops a framework to help VCs to improve profitability through decisive exit strategies.
Academic Paper from the year 2014 in the subject Business economics - Investment and Finance, grade: 1,7, Technical University of Munich, language: English, abstract: The focus of this paper lies on answering the questions, what factors should be considered to successfully exist a venture with regard to exit timing and routing and how these strategic choices are interrelated. The divestment process plays a critical role in the Venture Capital (VC) business model. Typically, a VC invested venture is not able to pay dividends prior to its exit as the business has not fully matured yet. Therefore, a Venture Capital Firm (VCF) generates virtually all of its income by realizing capital gains at the time of the venture’s exit. This indicates that a VCF heavily depends on a successful divestment transaction - in most cases, a poor exit execution leads to an inferior return on investment which in turn can ruin the VCF’s overall performance. A VCF therefore plans its exits carefully and evaluates its strategic choices. In this context, the two most important exit decision variables considered by a VCF are the choice of exit route and the choice of exit timing. By choosing the right exit route and pursuing good exit timing, a VCF can significantly increase its proceeds for a given venture. The primary focus of this paper lies on answering these aforementioned questions by drawing together the empirical research on these two dominant strategic exit choices.
With contributions from authors around the globe, Research Handbook of Entrepreneurial Exit explores this most important phenomenon in the entrepreneurial journey. This book presents a comprehensive review of the current issues in entrepreneurial exits
This paper considers the issue of when venture capitalists (VCs) make a partial, as opposed to a full exit, for the full range of exit vehicles. A full exit for an IPO involves a sale of all of the venture capitalist's holdings within one year of the IPO; a partial exit involves sale of only part of the venture capitalist's holdings within that period. A full acquisition exit involves the sale of the entire firm for cash; in a partial acquisition exit, the venture capitalist receives (often illiquid) shares in the acquiror firm instead of cash. In the case of a buyback exit (in which the entrepreneur buys out the venture capitalist) or a secondary sale, a partial exit entails a sale of only part of the venture capitalist's holdings. A partial write-off involves a write down of the investment. We consider the determinants of full and partial venture capital exits for all five exit vehicles. We also perform a number of comparative empirical tests on samples of full and partial exits derived from a survey of Canadian and U.S. venture capital firms. The data offer support to the central hypothesis of the paper: that the greater the degree of information asymmetry between the selling VC and the buyer, the greater the likelihood of a partial exit to signal quality. The data also indicate differences between the U.S. and Canadian venture capital industries, and highlight the impact of legal and institutional factors on exit strategies across countries.Parts of this paper appear in an earlier and different version entitled The Extent of Venture Capital Exits: Evidence from Canada and the United States, forthcoming in a book pursuant to a conference at Tilburg University and edited by J. McCahery and L.D.R. Renneboog (Oxford University Press).
Studies investment, portfolio involvement and exit strategies of venture capital firms investing in high-technology early-stage start-ups in India.
An essential guide to venture capital Studies have shown that venture capital backed entrepreneurial firms are on average significantly more successful than non-venture capital backed entrepreneurial firms in terms of innovativeness, profitability, and share price performance upon going public. Understanding the various aspects of venture capital is something anyone in any industry should be familiar with. This reliable resource provides a comprehensive view of venture capital by describing the current state of research and best practices in this arena. Issues addressed include sources of capital-such as angel investment, corporate funds, and government funds-financial contracts and monitoring, and the efficiency implications of VC investment, to name a few. Opens with a review of alternative forms of venture capital Highlights the structure of venture capital investments Examines the role venture capitalists play in adding value to their investee firms This informative guide will help you discover the true potential of venture capital.
Entrepreneurship is credited for technological invention, the rise of corporate empires and directly linked to economic development around the world. This multi-volume set of original essays showcases emerging theory and practice in entrepreneurship to illuminate its many facets, covering such topics as business models, entrepreneurial mindset, market research, capitalization, intellectual property, risk and uncertainty, and organizational culture. Volume 1, People, focuses on the intersection between individuals and entrepreneurship, with an emphasis on the cognitive, economic, social, and institutional factors that influence people's behavior with respect to entrepreneurship. Volume 2, Process, explores such topics as idea generation, market entry, financing, team building, and growth strategies, following the lifecycle of a new venture. Volume 3, Place, considers the context in which entrepreneurship is practiced, including corporate venturing, family enterprise, franchising, and public policies designed to promote entrepreneurship and economic development. Featuring contributions from leading scholars and practitioners, and with a global perspective throughout, this unique set explores new models, trends, and practices in entrepreneurship that will be of interest to a wide array of academics, professionals, and newcomers to the field.
Presenting a true insider's view of what venture capitalists look for when making an investment in a company or entrepreneur, this book reveals the true checkpoints and barometers they use when evaluating investment opportunities. Written by a collection of leading venture capitalists who invest in all stages and types of companies, it covers topics such as non-disclosure agreements, term sheets, valuations, and assessing what companies are really worth on a pre-money (before venture capitalists invest) basis.
Shows you how Shari'ah theory is applied to the private equity industry and how this works in practice. Case studies and examples of business financial appraisals give an in-depth view of areas including: the Islamic banking industry; its use as a source of funding in the biotechnology industry, pharmaceuticals, ICT, agriculture and fisheries; and how it is used by investment companies as part of their asset management strategies.