Venture Capital Data Research Articles

Exploring the Impact of Government Venture Capital (GVC) on Private Venture Capital (PVC) Investment Choices in China's Semiconductor Industry

Can government venture capital (GVC) change the investment choice of private venture capital (PVC) to fulfill its political mission? Most of the previous literatures on GVC and PVC focus on the post venture capital (VC), while there are few studies on the impact of GVC on PVC before venture capital investment. This phenomenon is more obvious in previous studies with China as the research background. Based on the background of China's semiconductor industry, which is strongly supported by the Chinese government, this paper studies whether GVC can affect the investment niche and venture capital investment mode of PVC. Through empirical analysis of the VC data of semiconductor industry in Anhui, Beijing, Jiangsu and Guangdong provinces from 2012 to 2022, I found that in the semiconductor venture capital market of the above four provinces and cities, GVC effectively played a role of leverage and effectively attracted PVC to invest in the semiconductor industry. And as the number of semiconductor GVC data as a percentage of all semiconductor VC data continues to decline year after year, PVC is more inclined to invest in semiconductor R&D firms, and more inclined to invest the firms whose location has served as a target region for government semiconductor related guided funds, and the investment form of PVC is more inclined to syndicate investment with government venture capitalists. It can be said that GVC has effectively influenced the investment decisions of PVC and fulfilled its political mission of promoting the independence of technology and production in China's semiconductor industry.

Micro venture capital

AbstractResearch SummaryRecently, the venture capital (VC) industry has experienced the entry of several new capital providers. Using US data on investors and their portfolio startups from 2000 to 2022, we document the emergence of a new type of investors: the micro VC. Our analysis reveals that micro Venture Capitalists (VCs) have an idiosyncratic investment strategy, which differs from traditional VCs. Compared with these investors, micro VCs invest in riskier startups, that is, early‐stage ventures initiated by less experienced founders; yet, micro VCs are less likely to syndicate, stage their investments, and replace the startup founders. Additionally, startups funded by micro VCs are less likely to experience successful exits than those backed by traditional VCs. These results can be traced to a mix of smaller capital endowments, less sophisticated limited partners, and lesser human capital of which micro VCs dispose, and that may induce them to spread their thin capital across many investments to maximize returns. Our analysis also uncovers important differences in the strategies pursued by micro VCs and business angels.Managerial SummaryThe VC industry is increasingly populated by a variety of investors with disparate characteristics and objectives. One such type of investors is represented by the so‐called micro VC firms. These are VC firms that manage funds typically below $50 million and focused primarily on investing in founder‐led startups. We leverage comprehensive VC data in the United States to answer three questions: (1) Who leads micro VC firms? (2) How do micro VC firms invest? (3) How do startups backed by micro VC perform? We find that micro VC firms are often led by relatively inexperienced entrepreneurs with little VC experience, and these firms are supported by less sophisticated limited partners. Although micro VC firms invest in riskier startups, they are less engaged in syndication and investment staging than traditional VC firms. Finally, micro VC‐backed startups have a lower probability of successful exit as compared with those backed by traditional VC firms. Collectively, our results suggest that micro VCs differ from traditional VCs beyond being “micro.”

Misconduct risks, legal enforcement and venture capital networks

AbstractThis study investigates the differing role of enforcement on the formation of venture capital (VC) syndication networks. We conjecture that public enforcement, with strong investigative powers against any syndicate member, discourages the formation of denser syndication networks due to misconduct risk by a member. By contrast, private enforcement, with strong disclosure and liability standards, enables denser syndication networks, through clear liability rules, standardized securities contracts and cost‐sharing amongst syndicate members. Our VC data from 31 countries show a negative impact of public enforcement on VC networks and partially support the positive impact of private enforcement depending on cultural conditions.

New partners crowd out old partners: the moderating role of network chasm

Both the entry and withdrawal of partners have received considerable attention in the venture capital (VC) literature. However, they have been viewed as more or less isolated dynamic choices. In this study, we filled this research gap by analyzing the relationship between new partner addition and old partner withdrawal in VC syndicates. We hypothesized a U-shaped relationship between the syndicate’s portfolio similarity with new partners and its old partners’ withdrawal possibility. Furthermore, we considered the negative moderating role of partner network characteristics, namely, the relational and structural chasm. We tested our hypotheses using the U.S. VC data during 1985–2016.

Misconduct Risks, Legal Enforcement, and Venture Capital Networks

This study investigates the differing role of enforcement on the formation of venture capital (VC) syndication networks. We conjecture that public enforcement, with strong investigative powers against any syndicate member, discourages the formation of denser syndication networks due to misconduct risk by a member. By contrast, private enforcement, with strong disclosure and liability standards, enables denser syndication networks, through clear liability rules, standardized securities contracts, and cost sharing amongst syndicate members. Our VC data from 31 countries show a negative impact of public enforcement on VC networks, and partially support the positive impact of private enforcement depending on cultural conditions.

Competition in the venture capital market and the success of startup companies: Theory and evidence

AbstractWe examine the effect of a competitive supply of venture capital (VC) on the exits (initial public offering or mergers and acquisitions) of startups. We develop a matching model with double‐sided moral hazard, and identify a novel differential effect of VC competition on the success of startups. Using VC data, we find evidence for this differential effect. For example, when the VC market becomes more competitive (Herfindahl–Hirschman Index decreases by 50% from its mean of 0.08), the absolute likelihood of success increases by 2.8% for startups backed by less experienced VC firms, but it decreases by 3.6% for startups backed by the most experienced VC firms.

A Social Network Analysis on Venture Capital Alliance’s Exit from an Emerging Market

This study investigated the impacts of network structure on a venture capital (VC) alliance’s successful exit from an emerging market by empirically analyzing joint VC data in China. We find that, compared to a mature capital market, the mechanism not only has a certain commonality but also shows the emerging market’s particularities. From the commonality perspective, the mechanism has a positive effect on successful exit by obtaining heterogeneity information. These particularities are manifested in the following three aspects. First, the mechanism is not conducive to deepening the enterprise value chain to establish credibility by obtaining short-term cash during an initial public offering with the enhancement of the VC alliance’s intervention ability for enterprise development. In addition, a VC alliance’s independent judgment is bound by the VC market. Furthermore, the problem of over-trust in investees reduces the likelihood of a VC alliance’s successful exit. Therefore, we should pay more attention to the particularity of emerging markets such as China to improve the relevant management mechanism.

The effect of venture capital backing on companies’ subsequent lobbying efforts

PurposeThe purpose of this paper is to explore the effect of venture capital (VC) funding as a form of ownership on lobbying strategies of venture-backed companies.Design/methodology/approachThe sample consists of venture-backed IPO companies between 1999 and 2014. The authors collected IPO data from the Thompson Securities Data Company (SDC) database. The authors collected VC data from SDC VentureXpert database and lobbying data from the Center for Responsive Politics database (opensecrets.org).FindingsConsistent with the hypotheses, the authors find that VC-backed companies spend less on lobbying compared to non-VC-backed counterparts. However, this relationship is moderated by companies’ R&D intensity. R&D intensive VC-backed companies choose to spend more on lobbying.Research limitations/implicationsThe research indicates that although VC backing has a negative impact on lobbying efforts, R&D intensity creates an incentive for VC-backed companies to spend more on lobbying in order to shape public policy to their benefit. The study consists of VC-backed companies that are public. The authors believe that future research can explore political strategies of VC-backed companies during their pre-IPO stage.Social implicationsThe authors believe that political strategies are powerful yet underutilized resources that VC-backed companies can rely on to shift industries and invest in innovative products that challenge norms and fight the status quo. Lobbying and other forms of political involvement can help them shape public policy.Originality/valueTo the best of the authors’ knowledge, the study makes a unique contribution to the literature by exploring the political strategies of VC-backed companies.

What drives the venture capital investments in China?

Purpose This study aims to examine the venture capital (VC) industry in China. It has demonstrated a history of high growth with significant variations over time. The authors have examined the trends and determinants of VC investments in China over a 20-year period from 1995 to 2014. They find that the aggregate amount of VC investments, the total number of venture deals and the average amount of venture investments per deal in China are all significantly impacted by macroeconomic conditions (i.e. GDP, export, money supply), technology innovations and financial market indicators (i.e. initial public offerings (IPOs), interest rate, price-to-earnings ratio, etc.). They also find that the 2007 China A-Share stock market crash and the subsequent global financial crisis have motivated VCists in China to adjust their investment strategies and risk levels by allocating more capital to later-stage investments and securing more deals with later-round financings. However, after the 2008 global financial crisis, the China’s venture industry has recovered faster compared to the US counterpart response. Design/methodology/approach The authors first perform trend analysis of VC investments at an aggregate level, by stages of development, and across industry from 1995 to 2014.To test H1 and H2, the authors use multiple regression models with lagged explanatory variables. To test H3, the authors use univariate tests to compare the measures of VC investments at an aggregate level, stage funds ratios, stage deals ratios and financing series ratios during both a five-year and seven-year time windows around the 2007 A-Share stock market crash and the subsequent financial crisis. Findings The development of the VC industry in China has demonstrated a history of high growth with significant variation over time. The authors find that the aggregate amount of VC investments, the total number of venture deals and the average amount of venture investments per deal in China are all significantly impacted by macroeconomic conditions (i.e. GDP, export, money supply), technology innovations and financial market indicators (i.e. IPOs, interest rate, price-to-earnings ratio, etc.). The authors also find that the 2007 China A-Share stock market crash and the subsequent global financial crisis have motivated VCists in China to adjust their investment strategies and risk by allocating more capital to later-stage investments and securing more deals with later-round financings. However, the China VC industry has recovered faster compared to the USA just after the 2008 global financial crisis. Research limitations/implications There are also limitations in the study. The VC data in China in the earlier 1990s might not be very reliable due to the quality of statistics. Therefore, the trend analysis and discussions mainly focus on the time after 2000. Also, the authors cannot find VC financing sequence data for the analysis. Second, there is no doubt that the policy impact from Chinese transforming economic system and government policies on its VC industry is substantial (Su and Wang, 2013). However, they cannot find an appropriate variable to be included in the empirical models to consider this effect. Further study on this area would provide meaningful information. Third, although the authors have done comparison study between the VC industry in China in this study and the VC industry in the US documented in Ning et al. (2015) and discussed some interesting findings, more in-depth research in this area will be very useful. Practical implications The findings have meaningful implications for VCists and start-up companies seeking equity financings in China. VCists should closely monitor macroeconomic and market conditions to make appropriate adjustments to their risk and investment strategies. Entrepreneurs seeking equity financings for their business could also monitor the identified macroeconomic and market indicators, which can help them with their timing and to negotiate a better equity financing deal. VC financing is more likely to succeed when key macroeconomic and market indicators become favorable. Originality/value This paper contributes to the literature by testing the supply and demand theory on the VC market proposed by Poterba (1989) and Gompers and Lerner (1998) from the macroeconomic perspective using 20 years’ VC data from China. The authors also examine how the 2007 A-Share stock market crash and the subsequent financial crisis affected VCists to adjust their risk levels and investment strategies. It provides useful information for international academia and policymakers to understand the quick rise of China VC industry. The authors also find that the macroeconomic drivers of VC industry are somewhat different under different economic systems.

Competition in the Venture Capital Market and the Success of Startup Companies: Theory and Evidence

We examine the effect of a competitive supply of venture capital (VC) on the exits (initial public offering or mergers and acquisitions) of startups. We develop a matching model with double‐sided moral hazard, and identify a novel differential effect of VC competition on the success of startups. Using VC data, we find evidence for this differential effect. For example, when the VC market becomes more competitive (Herfindahl–Hirschman Index decreases by 50% from its mean of 0.08), the absolute likelihood of success increases by 2.8% for startups backed by less experienced VC firms, but it decreases by 3.6% for startups backed by the most experienced VC firms.

The Market for Venture Capital: Entry, Competition and the Survival of Start-Up Companies

Over the last two decades the number of venture capital (VC) firms actively investing in start-up companies in the US has more than tripled. In this paper we examine (i) the response of incumbent VC firms to increased competitive pressure from less experienced entrants, and (ii) the implications for the funding and survival of start-up companies. We first develop an equilibrium model of the VC market with heterogenous entrepreneurs and VC firms. Each VC firm matches endogenously with an entrepreneur, offering capital in exchange for an equity stake. Our theoretical model predicts that entry of new VC firms has a ripple effect throughout the entire market: All start-ups then receive more capital in exchange for less equity (implying higher pre-money valuations), and become more likely to survive. We then test these predictions using VC data from Thomson One, and find strong empirical support.