Private Equity and Venture Capital Growth and Performance in Emerging Markets

Abstract

Brazil was one of the emerging markets that most received Private Equity (PE) and Venture Capital (VC) investments in the last 10 years. The industry is fairly new in the country, with a limited number of experienced managers. As many PE firms have raised new funds greater than USD 1 billion, the number of investments managed simultaneously has increased, thus putting pressure on PE/VC firms to hire and train new members for their teams. The aim of this study is to investigate whether this growth has compromised investment performance. Our data was collected in PPMs (Private Placement Memorandum) from 1994 to 2014, totalizing 311 deals. We find evidence that a greater number of simultaneous deals decrease the probability of total loss for both PE and for VC, possibly reflecting the improvement in the investment selection process. However, when we analyze only the PE investments that returned at least part of the invested capital, our results indicate that an increase in simultaneously managed deals has a negative effect on performance, probably reflecting a drop in the efficiency in monitoring them. When it comes to VC, we find weak evidence that a larger number of deals simultaneously managed can positively affect the return.