Exit Opportunities Research Articles

IPO as a VC-Funds Type of Exit

The key characteristic of private equity finance is that investors hold their investments only for a limited period of time. The key goal of VC funds is to grow the company to a point where it can be sold at a price that far exceeds the amount of capital invested. This process is called an exit or divestment. There are three basic types of exits: going public, being acquired by a larger corporation, a sale to a third-party investor.It is a widely believed and accepted proposition in private equity literature that the initial public offering of a private equity portfolio company is the most successful and profitable exit opportunity. However, according to the few sources of literature, public offerings are not the preferred divestment type for venture capital firms. Going public is one of the most critical decisions in the lifecycle of a firm. This is not easy, as the process is very comprehensive and complex. Hence, a lot of considerations should be taken into account. Because every investee firm is different, a development plan to achieve a successful exit takes into consideration a number of macroeconomic and microeconomic factors. Moreover, several advantages and disadvantages of exit through an IPO could be indicated. The objective of this paper is to show the success and profitability of going public by VC funds. The VC’s exit type as a way of cashing out on its investment in a portfolio company is a consequence of the exit strategy, which means the plan for generating profits for owners and investors of a company. While an IPO is the most spectacular and visible form of exit, it is not the most common one, as historically in the US it was, but still in Europe it has not been yet. There will be both literature and statistical data coming from different studies and reports used in this research.

Spatial dynamics and determinants of sustainable finance: Evidence from venture capital investment in China

Widely regarded as an efficient source to finance innovative activities and sustainable growth, venture capital has achieved a remarkable development since the 1980s. By employing a unique city-level panel dataset, this study first illustrates the locational dynamics of venture capital investment in China, while empirically investigating major socio-economic drivers of China's venture capital activities. We find non-trivial spatial spillovers of venture capital activities featured by regional imbalance, and identify government intervention, exit opportunity, human capital accumulation, new invention and transport infrastructure as five major influential factors for the formation and evolvement of local venture capital activities. Finally, we show the critical role of international venture capital and domestic institutional factors in shaping the venture capital industry in China. The study deepens the understanding of distributional and operational patterns on China's venture capital market, and raises multiple implications for entrepreneurs and policy makers on the efficient planning of venture capital activities in large developing economies.

Confidence among Silicon Valley Venture Capitalists Q3 2017–Q4 2018: Trends, Insights, and Tells

Thus, our confidence in the future will help determine the future—for better or worse. VCs, financiers of innovation and new venture creation, have a longer-term time horizon than most other investment executives, so their confidence about the future will tend to have impacts on the economy that affect all of us. Silicon Valley VCs, who are making investment decisions in the global heart of innovation in particular, have been shown to exert a strong influence on the evolution of business, so their outlook may be a significant factor in determining the future. To develop a quantitative index and qualitative commentary of trends and insights, Silicon Valley Venture Capitalist Confidence Index™ Research Reports have tracked VC confidence about the future entrepreneurial environment among about 30 VCs since Q1 2004. This article reviews Silicon Valley VC confidence over the six quarters from Q3 2017 to Q4 2018 in the context of concurrent economic indicators and finds that increasing VC sentiment tends to be based on improvements in exit opportunities and new technology disruptions that create new markets, while decreasing VC sentiment is linked to high valuations, rising costs of business, rising competition for talent, and uncertainty in the macro environment. VC confidence also appears to correspond to CEO confidence, perhaps due to the operational focus of VCs. Because VC confidence in the future entrepreneurial environment tends to impact their business decisions today (e.g., investments in new ventures), tracking VC confidence and the factors that drive it may provide unique and valuable insights to private and public market participants. TOPICS:Real assets/alternative investments/private equity

Borgerløn: Kan det nu betale sig?

The idea of basic income has been revitalized in the international debate as a solution to certain problematic trends, including labor market polarization or segmentation. This paper discusses two dominant issues in the debate, namely financing a basic income, and its ability to alleviate labor market segmentation. This means that the normative logics behind basic income with regard to justice, liberty and ecological sustainability will not be discussed. Following insights from the most recent international debate, the paper discusses the dilemma between the adequacy or generosity of basic income on the individual level, and its economic feasibility via taxation. A low or partial basic income model in combination with traditional income benefits could be feasible within the framework of existing tax levels. However, the paper also concludes that segmentation in terms of inequalities in exit and voice opportunities on the labor market is not solved by basic income by itself. Particularly low or partial basic income models may even support such inequalities.

Rural Tourism Development: Exit Opportunities for Expanded Public Works Participants

Rural Tourism Development: Exit Opportunities for Expanded Public Works Participants

An Empirical Analysis of Relationship between Private Equity Investments and Exits in India

During the last decade the growth in the private equity industry in India has been phenomenal, especially in the recent five years. Private equity industry has become the prime interest area for many researchers and academicians in India. Private equity industry in India is burgeoning area of research, which inherits many explorations and untapped potential areas of research. One such untapped area of research is the empirical research is relationship between Private equity investments and exits in India. The research question which has leaded the study is that Private equity industry being in its transition stage, does the performance and opportunities created by the early starters has proven the potential and invites more investors and investments? In this line, this study is an attempt to assess the interrelationship and causal effect in the relationship using VECM (Vector Error Correction Model) and Granger causality model. The results of the study confer that existence of long run causal relation between Private Equity Investments and Private Equity Exits. Thereby, the study emphasis the impact of private equity exits on private equity investments in India. Private Equity Exit opportunities for the investments made plays crucial role in attracting Private Equity investments in India.

Exit versus Voice: Competition and Dissatisfied Patients’ Responses to General Practitioners

Abstract : Background: Hirschman’s 1970; 1980 analytical conceptualization of the influence of competition on exit vs. voicing, the point of departure for this study, suggests that the presence of competitive providers’ fosters patients’ decisions to switch GPs exit. In Norway, the list patient system introduced in 2001 gives patients the option of changing GPs up to twice within a year. Although patient exiting can signal dissatisfaction with a particular GP, this signal is less informative about which aspect of the service is the issue. A private web-based rating site, Legelisten, was launched in Norway in May of 2012 to give patients a platform for voicing their opinions about the health care they receive, thereby also providing feedback that doctors can use to improve their services. Higher exit opportunities in a competitive market can reduce a patient’s motivation to voice about his or her provider; however, online voicing creates available knowledge about GPs and becomes a public good of high interest, especially in large-market settings, leading to higher participation in voicing in these markets than in smaller ones. Objective : The study aims to test the influence of GP market competition on dissatisfied patients’ choice to exit switch physician or to voice participate in online rating. Method : A panel data set covering the entire population of Norwegian GPs was utilized for every half year from January 2010 to January 2015 for patient exiting and from January 2012 to January 2015 for patient voicing. The analysis was primarily quantitative, involving descriptive statistics and appropriate panel regression methods for both GP and market-level analyses multilevel mixed-effect linear regression for the GP-level exit, multilevel mixed-effects logistic regression for the GP-level voice, linear regression for the market-level exit, and the Tobit regression for market-level voice. Findings : Higher GP market competition both with and without adjusting for municipality size increased the proportion of patients switching exit. However, for voice, higher GP market competition not adjusted for municipality size led to more participation for both dissatisfied and overall voice, while adjusted for municipality size led to less participation. This opposite effect, reflects the municipality size effect and the associated difference in the public good motive for contributing to the online voice. This result is consistent in both the GP-level and market-level analyses, strongly supporting the hypothesis adopted by this study.

“The Game Ain’t What It Used to Be”: Drug Sellers’ Perceptions of the Modern Day Underground and Legal Markets

This study draws on interviews with 20 drug sellers in Philadelphia to explore their subjective perceptions of risk and reward within the modern context of increased police scrutiny and few illegal or legal opportunities for social mobility. Most respondents earned little, viewed drug sales negatively, and perceived the next generation of drug sellers to be unpredictable and prone to risk. They sought exit opportunities, associating continued participation in drug sales with childhood and wishing to participate more fully in the mainstream economy. Half of the sample worked in legal employment, and many argued that this was both necessary and beneficial to reducing risk. The findings suggest that traditional theories explaining participation in drug sales may need to be re-examined in light of changes in the landscape of the drug economy. Moreover, they may provide context to understanding why deterrence-based policies have generally failed to disrupt drug markets.

Strategy First, Execution Second: Why Life Science Entrepreneurs Should Adopt a Top-Down Mindset Early

Despite the dedication of the management team and board to a company’s success, an often overlooked component is the dynamics of the segment in which the company operates. In an effort to demonstrate the importance of the external view and how segment dynamics are likely to significantly impact the reality of companies, we analyzed recent data in the three-year period between 2015 and 2017 pertaining to financing events, M&A transactions and initial public offerings (IPO) in three separate sectors: therapeutic devices, oncology therapeutics and antibiotics. The analysis presented will provide management with a good estimation as to the required capital to achieve value-add milestones as well as the anticipated return on investment. These examples demonstrate the fundamentally different dynamics of three sectors, which will impact the most probable path to liquidity of companies in those sectors. Therapeutic devices have to often get regulatory approval prior to an exit where exits happen earlier in clinical development for the oncology therapeutics sector. Despite the high unmet need, there have been limited exits in the antibiotics sector. In all cases, return on investment is greater when the company’s exit included being acquired versus an IPO. This data demonstrates that exit opportunities are largely sector-dependent and suggests substituting external formal thinking, market-driven evaluation and analysis for inward-looking and biased judgment will being beneficial crafting a mature business case as well increasing the probability of success.

Decision making in the prisoner's dilemma game: The effect of exit on cooperation and social welfare

AbstractThe prisoner's dilemma game is a mixed‐motive game that offers two players the simultaneous choice between a cooperative and a defective alternative. An often neglected aspect of such a binary‐choice game, however, is that in many real‐life encounters, people can choose not only to cooperate or defect, but they also have a third option: to exit the social dilemma. Although in the literature a consensus has emerged that the addition of an exit opportunity benefits cooperation, there is only scant research into its effect on social welfare. In order to allow a direct comparison of cooperation rates and welfare levels across binary‐choice and trinary‐choice games, in this study, we used a design in which the same participants played similar games with and without an exit option (i.e., a within‐subjects design), and this in a range of structural variations. The findings of our study indicated that the aggregated outcome of both players is generally lower in games with an exit option than in games without an exit option. Moreover, our results showed that the efficiency of the exit option strongly depends on the specific outcome structure of the game (in terms of its endowment size, (a)symmetry, and level of noncorrespondence). In the discussion, it is argued that the implementation of an exit option as a strategy to increase social welfare should be critically assessed.

Silicon Valley Venture Capitalist Confidence Indexx

Silicon Valley Venture Capitalist confidence in the Bay Area entrepreneurial environment rose in the final quarter of 2017. The upward change in direction of sentiment was levered to increasing amounts of available funding to support entrepreneurs working to introduce breakthrough technologies that aim to transform industries and change the trajectory of business. Macroeconomic metrics, particularly those tied to recent changes in corporate tax policy, also suggest a dynamic business environment where more corporate resources may be deployed to the development and acquisition of innovation. Record public stock market valuations also provide corporations a richer share currency to acquire innovation, thus providing additional exit opportunities and incentives for entrepreneurs and their venture capital backers.

Initial Coin Offerings

This paper examines the market for initial coin offerings (ICOs). ICOs are smart contracts based on blockchain technology that are designed for entrepreneurs to raise external finance by issuing tokens without an intermediary. Unlike existing mechanisms for early-stage finance, tokens potentially provide investors with rapid exit opportunities thanks to liquid trading platforms. The marketability of tokens offers novel insights into entrepreneurial finance, which I explore in this paper. First, I document that investors earn on average 8.2% on the first day of trading. However, about 40% of all ICOs destroy investor value on the first day of trading. Second, I explore the determinants of market outcomes and find that management quality and the ICO profile are positively correlated with the funding amount and returns, whereas highly visionary projects have a negative effect. Among the 21% of all tokens that get delisted from a major exchange platform, highly visionary projects are more likely to fail, which investors anticipate. Third, I explore the sensitivity of the ICO market to adverse industry events such as China's ban of ICOs, the hack of leading ledgers, and the marketing ban on FaceBook. I find that the ICO market is highly susceptible to such environmental shocks, resulting in substantial welfare losses for investors.

Venture Capital Investments and Merger and Acquisition Activity Around the World

We examine the relation between venture capital (VC) investments, M&A activity, and merger competition laws in 48 countries around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals. We also explore the effects of country-level merger competition laws and also pro-takeover legislation passed internationally on VC activity. We find significant reductions in VC activity in countries with stricter competition laws and find that VC activity intensifies after enactment of country-level takeover-friendly legislation.

Delegated Service Authority: Institutional Evolution of PEPFAR Health‐Based Program Implementing Units in Tanzania

AbstractThe critical development literature examines donor interventions' institutions and institutional impact. Donor agencies examine specific intervention mechanisms to improve intervention effectiveness or conformity with given development trends. Both literatures insufficiently address the potential evolution of program implementing units (PIUs) deployed by donor agencies according to the units' respective technical capacities. This article assesses PIU evolution using specific units contracted under the United States Government's PEPFAR program in Tanzania. These units evolved in their respective operational space that exists in the interactions between three stakeholder categories: (1) the contracting agency of PEPFAR; (2) relevant Tanzanian national public institutions; and (3) local Tanzanian authorities responsible for HIV/AIDS or health service delivery. This article examines how stakeholders' delegation of authority to PIUs for technical management and/or implementation of HIV/AIDS prevention and treatment services drive the units' institutional evolution. This evolution is ongoing given iterative PIU‐stakeholder interaction expanding units' services along with delegated authority. In the Tanzanian case, evolved PIUs became essential to the national health system with few institutions able to re‐assume the units' services or delegated authority. They also fostered a new domestic technocracy with transnational network connections to the global public health epistemic community offering new policy platform voice and exit opportunities.

Finance and Growth: The Legal and Regulatory Implications of the Role of the Public Equity Market in the United States

The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus. In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity market’s contribution to US economic growth is highly limited to the small but important contemporary role it plays in providing exit opportunities for entrepreneurs and venture capitalists. Nevertheless, there is a serious question as to the real economic growth benefit of easy exit. In particular, exit by merger may well be more macro-economically efficient than exit by IPO. I further tentatively conclude that the modern behavior of the US public equity market may be damaging to the long-term sustainability of American corporate capitalism and to long-term social welfare – in particular the market’s significant role in increasing economic inequality. Thus an overall appraisal of the market’s benefits and costs in the broader context of economic growth and economic inequality is long overdue. Important questions for corporate governance, financial regulation, and the structure of market institutions are raised. Along the way, I will have reason to question the continuing viability of the Miller-Modigliani irrelevance theorem.

Cycling through developmental decisions: how cell cycle dynamics control pluripotency, differentiation and reprogramming.

A strong connection exists between the cell cycle and mechanisms required for executing cell fate decisions in a wide-range of developmental contexts. Terminal differentiation is often associated with cell cycle exit, whereas cell fate switches are frequently linked to cell cycle transitions in dividing cells. These phenomena have been investigated in the context of reprogramming, differentiation and trans-differentiation but the underpinning molecular mechanisms remain unclear. Most progress to address the connection between cell fate and the cell cycle has been made in pluripotent stem cells, in which the transition through mitosis and G1 phase is crucial for establishing a window of opportunity for pluripotency exit and the initiation of differentiation. This Review will summarize recent developments in this area and place them in a broader context that has implications for a wide range of developmental scenarios.

Protection of Minority Shareholders: Mandatory Bid or Partial Bid Rule.

This contribution shows the idea that the mandatory bid rule is likely to be protective for minority shareholders, as minority shareholders have an opportunity for early exit from company prior to the shift of control and to receive reward from ‘control premium’. Although the mandatory bid rule decreases market uncertainty, and due to its high price results reduces amount of inefficient takeovers; it minimises takeover activity as well, hence reduces chances for minority shareholders to obtain an access to ‘control premium’. Nobody can give firm guarantee that price in mandatory bid will be fair. Moreover, officially represented approach of the European Court of Justice is that it does not recognize minority shareholders’ rights protection as general principle of the EU Community law. Therefore, adoption of partial bid in takeovers under compulsory supervising authority regulation using methods of consultation widely is proposed.

Finance and Growth: The Legal and Regulatory Implications of the Role of the Public Equity Market in the United States

The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus.In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity market’s contribution to US economic growth is highly limited to the small but important contemporary role it plays in providing exit opportunities for entrepreneurs and venture capitalists. Nevertheless there is a serious question as to the real economic growth benefit of easy exit. In particular, exit by merger may well be more macro-economically efficient than exit by IPO.I further tentatively conclude that the modern behavior of the US public equity market may be damaging to the long-term sustainability of American corporate capitalism and to long-term social welfare – in particular the market’s significant role in increasing economic inequality. Appraisal of the market’s benefits and costs in the broader context of economic growth and economic inequality, as well as its relationship to corporate governance, are few and require further examination. Important questions for corporate governance, financial regulation, and the structure of market institutions are raised.A subsidiary conclusion is that the Miller-Modigliani dividend irrelevance theorem might itself have become irrelevant in light of contemporary corporate financing practices.

Private Equity in Emerging Markets: Yesterday, Today, and Tomorrow

This article examines quantitative data on economic growth, market composition, deal structures, exit opportunities, and manager performance in emerging markets relative to developed markets. We find that despite recent downturns, emerging markets are experiencing overall rapid growth. Moreover, private equity investments appear to focus on companies in high-growth sectors that are underrepresented in public markets, thereby allowing limited partners more balanced exposure to a country’s economic drivers. Furthermore, we find that minority investments in private companies tend to perform on par with majority positions. Finally, because fund manager performance varies widely but also exhibits some consistency, our findings stress the importance of manager selection. <b>TOPICS:</b>Private equity, emerging, statistical methods, manager selection

Should I Stay or Should I Go? Reciprocity, Negotiation, and the Choice of Structurally Disadvantaged Actors to Remain in Networks

Drawing on existing theories of social exchange as well as self-categorization theory, we consider how two forms of direct exchange influence whether structurally disadvantaged actors choose to stay in the micro-structures that disadvantage them. We posit that (1) the exit opportunity is more likely to result in disadvantaged actors coming to view their network as a group if there has been a history of reciprocal, as opposed to negotiated, exchange and (2) this psychological group formation should account for disadvantaged actors disproportionately choosing to remain in reciprocal exchange networks. We also consider whether the information actors have about the alternative network affects this choice. Findings from two laboratory experiments generally support our argument that for disadvantaged actors, psychological group formation mediates the relationship between exchange form and staying in networks.