Exit strategies of venture capital-backed companies in Singapore

Abstract

As the exit of venture capital (VC) is essential for the growth of the VC industry, an empirical study is conducted on the VC exit mechanism in Singapore using survey and interview data. Relying on empirical evidence of VC firms in Singapore with exits from 1990-1998, the aim is to explore the rationale of VCs in choosing a particular mode of exit for their investments. This study presents empirical evidence of the various determinants which affect Singapore venture capitalists exit choices, and explores the local VC investment/exit process. Consistent with other studies, it was found that companies in the family-owned, high-technology industries tend to exit via initial public offering (IPO). In addition, the IPO exit route is positively related to the total amount of venture financing and company total sales. However, the level of equity valuation is shown to be independent of the likelihood that the VC-backed companies will exit via IPO. In contrast to the grandstanding hypothesis, younger VCs do not perform more IPO-exits than their older counterparts. Another noteworthy finding is that the frequency of financing rounds is independent of the IPO exit. All these results reveal the immaturity of Asia's capital markets compared with the West.