Do Big Tech acquisitions of start-ups spur or deter venture capital? Evidence from China

Skin in the Game: An Analysis of Venture Capital Investment in Dermatology from 2002 to 2021

In a venture capital (VC) deal, a partnership contract is designed to avoid different conflicts arising due to information asymmetry and agency problem and to make appropriate provision for compensation. This study investigated different theoretical approaches that have been deployed to understand this phenomenon. This article extracted the important aspects of the compensation structure and covenants required to set in the contract between venture capitalists and their limited partner (LP) in order to meet the agreed-upon proportion of return distribution and proposed a VC compensation model. Various studies were analyzed to get evidence on various aspects of a VC deal, such as the reasons why professional VCs exist, and factors that determine the design of a contract. Private ownership, information asymmetry, and illiquidity associated with a VC investment are key explanatory factors, which make VC - LP partnership agreement different from other financial contracts. The findings of this study could be alienated into two constituents. First, the compensation that a VC receives from its LP is performance based, which varies according to the size of the fund, experience of VC, past performance of VC, and signalling function. Second, some important covenants are generally mentioned in such a contract during raising funds for investments, though these are heterogeneous in each deal and their contribution in compensation allocation varies with each deal. In this study, we have proposed a compensation model for venture capitalists as a general partner by their limited partner, which is based on a principal-agent model. Also, this study focuses on contractual covenants, which are responsible for imparting flexible incentive provision and provide control over VC activity. The arrangement of VC compensation and covenants depend upon the management support and effort of VCs. This study can contribute to resolving the conflicts - between venture capitalists and their investors - that arise due to the agency problem and bring to light the compensation arrangement and provision of covenants used in the contract between VCs and their LPs.

The fast-growing private equity (PE) and venture capital (VC) activities in emerging markets increase the ratio of a firm’s investment-to-staff, which raises the question of whether the growth in the investments’ number will negatively impact a fund’s performance. We analyzed data at the deal level in Brazil, where the industry is relatively young but has raised a significant amount of capital. The results indicate that a higher number of deals reduces the probability of total loss for both PE and VC. However, when we exclude total losses, we find that it has a negative effect on PE deals but not VC deals.

This paper investigates the effects of acquisitions by “big techs” on venture capital (VC) funding for start-up companies. Because of the strong association between VC investment and innovation, this approach also sheds light on the repercussions of big tech start-up acquisitions on innovation. We analyze observations on more than 32,000 venture capital deals in 173 different segments of the technology industry and nearly 400 tech start-up acquisitions made worldwide between 2010 and 2020 by Google, Facebook, Amazon, Apple, and Microsoft. Results obtained with fixed effects panel and differences-in-differences estimators reveal a positive, causal impact of big tech start-up acquisitions on venture capital activity. However, the findings suggest that the effects are transient and fade away after several quarters. These insights are relevant for the current policy discussions on limiting the ability of big tech companies to acquire start-ups.

This paper investigates the effects of “Big Tech” platform acquisitions on venture capital (VC) funding for start-ups. We analyze 32,367 venture capital deals between 2010 and 2020, and 392 tech start-up acquisitions by Google, Facebook, Amazon, Apple, and Microsoft. Results obtained with fixed effects panel and differences-in-differences estimators reveal a positive, statistically significant, average effect of Big Tech start-up acquisitions on worldwide, venture capital activity. Positive effects were also found for the United States and Europe. However, the findings suggest that the effects are transient and fade away after several quarters. Because venture capitalists fund start-ups to enable entrepreneurial innovation, this approach also informs our understanding of the repercussions of these acquisitions on the start-up innovation ecosystem. The large number of observations over an extended period unlocks insights into historical patterns that are relevant for the design of digital platform policies.

Venture capital (VC) firms are characterized by investing in high-risk/high-return deals. Drawing upon the influence rent perspective, our study finds that the risk-return relation of VC investments can be manipulated and distorted through political influence. Based on 8,748 VC deals made by 359 VC firms in China, it shows that politically-connected VC (PVC) firms tend to invest in late stage companies (low-risk). Moreover, PVC firms exit VC deals significantly more quickly and demonstrate higher investment returns than other VC firms (high-return). Finally, we show that PVC-bundled firms (i.e., VC firms closely following PVCs via co-invest relationships) are endorsed with setting-specific influence rents and can also access to low-risk/high-return VC deals when co-invest with PVC firms.

I show that intermediaries can affect the design of financial contracts by reducing asymmetry in contracting parties' knowledge about complicated and interrelated contract contingencies. Across 908 contracts used in venture capital (VC) transactions, entrepreneurs counseled by attorneys with high VC expertise sign contracts with fewer investor-friendly cash flow contingencies, particularly entrepreneurs with less knowledge of such contracts. This finding does not hold for attorneys with high general expertise, which underscores the intermediary's role of providing information about a specific type of complex contract. The results are likely to reflect a causal association because I do not observe that law firms with more VC expertise systematically counsel venture-backed companies of higher quality.

PurposeThe paper aims to increase the understanding of the venture capital industry in Central and Eastern Europe (CEE) by examining the venture capital industry in Hungary, Poland, the Czech Republic, and Slovakia between 1998 and 2003. Even though the number of academic studies focusing on the venture capital activities in the CEE region has been increasing in recent years, the coverage of this industry is relatively weak and not well understood by individuals, businesses, and academics.Design/methodology/approachThe study focuses on the analysis of secondary data available from the European Venture Capital Association on venture capital activities in the CEE region. The paper examines three key statistics that best describe the venture capital process, namely fundraising, investing, and exiting activities.FindingsThe study has three conclusions. First, venture capital financing continues to be a major source of capital to the developing firms in the region. Second, Poland is the market leader in the region in the venture capital activities as described by key statistics. Third, the countries of CEE cannot be treated as a homogeneous block.Originality/valueThe study is important for two reasons. First, the study focuses on longitudinal data between 1998 and 2003, the most important period in the development of the industry. Shifts in trends in these key statistics can only be observed by analyzing longer‐term data series. Second, the evolution of the venture capital industry in the analyzed countries could be used as a blueprint for venture capital development in other countries in the region.

We consider US Venture Capital (VC) activity as a measure of entrepreneurship and study its relationship with the business cycle. This measure addresses some biases in alternative measures such as self-employment and business ownership that have been considered in previous literature. Despite the well-known volatility in VC activity, it remains an important source of funding for entrepreneurs engaging in innovative business creation. We document key stylized facts for VC entry (seed and start-up stage) and VC exit (late stage) at the aggregate and sectoral level. VC entry is more strongly correlated and is contemporaneous with the business cycle while VC exit lags the cycle by two quarters. There is strong evidence for a bi-directional causality between entrepreneurship and economic activity. A positive shock to VC activity has a positive effect on real GDP. Our findings can help inform policies designed to support entrepreneurship.

This paper aims at providing novel evidence about the geographical concentration of venture capital (VC) activity in seven European countries. Drawing upon a unique dataset, VICO 2.0, we describe the geographical distribution of VC investments and VC-backed technology-intensive start-ups and analyse the regional and country-level factors associated to the regional concentration in VC activity. Results from econometric estimates suggest that regional VC activity is positively associated to the level of regional knowledge intensity, the level of regional human capital, the local supply of VC investors and a more favourable country’s legal and institutional environment.

The paper explores how the focus of Russian startups on investment in sustainable development technologies affects their attractiveness to venture capital investors. Venture capital plays a significant role in financing rapidly growing companies as they develop new technologies and thereby supports industries that drive economic growth. However, venture capital activity in recent years has been flagging both globally and in Russia. Sustainable development technologies mitigate environmental and social risks in the economy and in society and have been increasingly attractive to investors since the mid-2000s. The article analyzes to what extent sustainable development technologies may appeal to venture capital investors in the Russian market despite the current turbulent environment. The study used panel regression analysis of 850 venture capital deals concluded between 2018 and 2024 and found a significant relationship between a company’s focus on sustainable technologies and the amount of venture capital it raised. There was also a positive correlation with the probability of securing subsequent rounds of funding, which was also influenced by the age of the portfolio company. These findings show that mature companies can better integrate ESG principles and therefore become more attractive investments for venture capital. The study also indicated that syndicated investor participation in deals and the degree of innovation in the technology developed by a company had a positive impact on attractiveness to venture capital. The article is one of the first quantitative studies to explore the relationship between a company’s concentration on sustainable development technologies and the attention it receives from venture capital investors. As such, its findings may be of interest to researchers studying both sustainable development and venture capital, and they can also be utilized to enhance Russia’s venture capital market.

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