Abstract
Data on VC and PE efficiency shows that the overall efficiency of VC- backed firms is higher than that of non-VC-backed firms at every point in time. This efficiency advantage of VC-backed firms arises from both screening and monitoring. The efficiency of VC-backed firms prior to receiving financing is higher than that of non-VC- backed firms, and further, the growth in efficiency subsequent to VC financing is greater for such firms. The above increases in efficiency of VC-backed firms are spread over the first two rounds of VC financing after which the TFP of such firms remains constant until exit. Overall efficiency gains generated by VC backing arise primarily from improvements in sales, the efficiency gains of high-reputation VC-backed firms arise also from lower increases in production costs. Finally, we show that VC backing and the associated efficiency gains positively affect the probability of a successful exit.
Highlights
Venture capital can be defined as finance that is provided on a medium to long term basis in exchange for an equity stake
The number of companies that are successful in raising venture capital is small they have a disproportionate impact on economic development in terms of innovation, job creation, R&D expenditures, export sales and the payment of taxes
Venture capital-backed companies are faster in developing their products portfolio and bringing them to broad market, pursue more radical and ambitious product or process innovation and produce more valuable patents. It is because funds play such an important role economic development that venture capital attracts the attention of both scholars and policy-makers.At its core venture capital and private equity industry have emerged as a tool to reduce agency costs
Summary
Venture capital can be defined as finance that is provided on a medium to long term basis in exchange for an equity stake. Venture capital-backed companies are faster in developing their products portfolio and bringing them to broad market, pursue more radical and ambitious product or process innovation and produce more valuable patents. It is because funds play such an important role economic development that venture capital attracts the attention of both scholars and policy-makers.At its core venture capital and private equity industry have emerged as a tool to reduce agency costs. Agency costs present the opportunity for private equity and venture capital firms to realize gains – for as long as managers are underperforming in maximizing the value of the companies they are managing
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