Early-stage Projects Research Articles

Exit market liquidity and venture capitalists’ investment behaviour: Evidence from Australia, Canada and the United Kingdom

This study investigates the effect of exit market liquidity on venture capitalists’ (VCs’) investment behaviour. The sample consists of 4,758 investment rounds disbursed by venture capital funds in three selected common law-based OECD countries (Australia, Canada and the United Kingdom) during 1990-2005. The results indicate that investments in early-stage projects by VCs are not related to exit market liquidity conditions after controlling for exogenous factors. Empirical results, however, show that exit market liquidity is positively associated with VCs’ investments in new projects (as opposed to follow-on projects). Put differently, new firms (including start-ups) are more likely to obtain venture capital funding during times of liquid exit market conditions. Arguably, these findings highlight the importance of ‘timing’ of new project launch

Challenges in tuberculosis drug research and development

The present decade has seen a reawakening of tuberculosis (TB) drug research and development (R&D), spurred on by an urgent need to stem the tide of the disease globally and develop new, more effective treatments against drugsensitive and resistant strains. As a result, there are now seven products in clinical development and the largest pipeline of early-stage projects and compounds in history. The primary goals of this resurgent activity are to shorten

Liquidity Risk and Venture Capital Finance

This article provides theory and evidence in support of the proposition that venture capitalists adjust their investment decisions according to liquidity conditions on IPO exit markets. We refer to technological risk as a choice variable in terms of the characteristics of the entrepreneurial firm in which the venture capitalist invests, and liquidity risk as the current and expected future external exit market conditions. We show that in times of expected illiquidity of exit markets (high liquidity risk), venture capitalists invest proportionately more in new high-tech and early-stage projects (high technology risk) in order to postpone exit requirements. When exit markets are liquid, venture capitalists rush to exit by investing more in later-stage projects. We further provide complementary evidence that shows that conditions of low liquidity risk give rise to less syndication. Our theory and supporting empirical results facilitate a unifying theme that links related research on illiquidity in private equity.

Venture capitalists' decision-making in small equity markets: a case study using participant observation

Despite significant academic research undertaken in the field of venture capital decision-making process, the dimension and maturity of equity market has not yet been considered as an important contextual factor. Aiming at developing an understanding on how venture capitalists (VCs) select early-stage projects in small equity markets, a pilot study using participant observation technique has been conducted in a Portuguese venture capital firm. The findings indicate that the decision-making process and the criteria used by VCs in this market context differ significantly from those used in the developed equity markets. Regarding the decision-making process as a whole, it appears to be more interactive than usually portrayed in previous models. Moreover, some of the activities take place simultaneously, rather than sequentially. In particular, relevant differences were found in deal origination, deal evaluation and closing phase. Regarding the decision-making criteria applied, the findings of this case study are in accordance to previous studies and suggest that the attention of VCs is very focused on entrepreneur(s). The business idea, its sustainable advantages and growth potential are also considered important but, contrarily to previous literature, financial projections do not seem to play a major role in the selection of early-stage projects.

Managing Open Innovation

OVERVIEW:Industrial innovation is becoming more open, requiring changes in how firms manage innovation. External sources of knowledge become more prominent, while external channels to market also offer greater promise. This complicates the evaluation of early-stage technology projects, which often involve significant technical and market uncertainty. In such circumstances, companies need to “play poker” as well as chess. Measurement errors (false positives, false negatives) are likely to arise from judgments about the commercial potential of early-stage projects. Most companies' policies consciously limit “false positives” in assessing a project's commercial potential, but few companies take steps to manage the risk of “false negatives.” New metrics may help a firm focus more upon external sources of innovation to enhance its business model, and enable the firm to salvage value from false negatives that otherwise would be lost.