Venture Capital Deals Research Articles

Research on the Preferences of U.S. Venture Funding Deals in 2023 for the Industry in Which the Company Operates

Since the effects of geopolitics and recession, venture capital deals have become more cautious and companies' access to capital has become more difficult. Therefore, this research will analyze 2023 U.S. venture capital deal data to explore venture capitalists' preference for the corporate industry. In previous similar studies, visual graphics were essential, which was also applied in this study. At the same time, OLS regression model was also used for verification in this research. The results show that in 2023, U.S. venture capital deals favor the technology industry, especially the two hot spots of artificial intelligence and biotechnology. There is a positive linear relationship between venture capital investment and corporate hot spots. When the company industry moves closer to the technology industry, the amount of venture capital investment increases significantly. However, the November-December data is still to be added. Forecasting the future preferences of the venture capital trading industry is also an issue that needs to be addressed. Finally, on the basis of previous studies, this paper also provides some meaningful results for venture capital market participants, hoping to help improve the efficiency of venture capital market.

A Framework for Valuation and Portfolio Optimization of Venture Capital Deals with Contractual Terms

Venture capitalists invest not only in the business aspect of a deal but also in its contractual terms. Therefore, the selection of deals and the combination of contractual terms pose challenging decisions for them. This paper consists of two main sections. The first section introduces a novel framework for the valuation of venture capital (VC) deals, including startups and their contractual terms. By taking into account risk situations, this section presents the valuation of combined contractual terms, including call options, liquidity preference, and participant rights. In the second section, a new multiobjective mathematical model for VC deals and contractual terms portfolio selection is developed using right-tail probability, strategy alignment, and a utility function. To solve the proposed model, three metaheuristic algorithms—Non-Dominated Sorting Genetic Algorithm (NSGA-II), Multi-Objective Binary Harmony Search Algorithm, and Dynamic Tuning Parameter Binary Harmony Search Algorithm (DTPBHS)—are applied. Based on numerical examples, DTPBHS outperforms other algorithms in the “Mean Ideal Distance” index, but NSGA-II demonstrates the best performance in the “Rate of Achievement of two objectives simultaneously” index. Furthermore, we demonstrate that the proposed utility function is more robust than the right-tail probability function under default deals conditions.

VENTURE CAPITAL INVESTMENT AND CIVIL LAW: CHALLENGING FOR UKRAINE IN AN INTERNATIONAL PERSPECTIVE

The sudden Russian attack in 2022 dramatically affected many facets of the Ukrainian economy as well as the global economy, prompting worry that the war would stop flows of venture capital. Today Ukraine is not only fighting for freedom. Ukraine continues to implement an ambitious reform agenda and look for ways to support investment into our economy. It is important time for economic of innovations and venture investment in Ukraine. To support this, the Ukraine Redevelopment and Recovery plan that was initiated by the Ukrainian Venture Capital and Private Equity Association (UVCA). This plan aims to open the Ukrainian venture capital (VC) market to investors from all sectors and countries of the world who are supporting Ukraine and actively joining projects for the Ukrainian development. It is expected to lay the foundation of the framework of the legal regime fostering fast recovery and economic growth after the war reconstruction. Given the scale of Ukraine’s losses, it`s obvious that Ukraine needs additional help aside from macroeconomic support, among that – joint investments initiated by the private sector in Ukraine. The highly-developed market of VC investment might be critical to the country’s recovery and transformation. The issue of how the correlation between the legal framework that helps attract finance into Ukraine and its leakage out of the country under the current circumstances and previous obstacles to VC investments is an important one, and difficult to regulate. In context of recent legal reforms in Ukraine, our focus on legal framework of VC Investments in the economy of recovery and reconstruction. A vast body of research has been carried out to investigate the legal factors which are conducive to VC Investments, and that may better explain the differences in the degree of development and performance of VC transactions around the world. However, there has only been a limited effort in the legal literature to systematize what is known about the institutional factors that spur VC Investments in Ukraine. This paper tries to close that gap by providing useful legal and actionable insights that might assist to raise VC Investments through understanding current tendency of VC deals in the UK. The base is the empirical research of the existing literature on the institutional and related determinants of VC in the UK. The aim of this paper is also to propose interesting avenues for future research on the VC investment process in Ukraine with an outline of how venture deals can be structured. The article also determines the peculiarities and obstacles of applying the common law to VC Investments under domestic legislation.

Historical Military Conflict and Cross‐Border VC Performance: The Role of Ownership Control

AbstractThis study investigates the effect of historical military conflict (between the home countries of venture capital (VC) firms and portfolio companies) on the performance of cross‐border VC investments. Using exhaustive data on global cross‐border investments during 1986–2017, we find that adverse memories imprinted by historical military conflict have a negative effect on cross‐border performance as measured by internal rate of return and public market equivalent. We show that nation‐dyadic (i.e. political affinity) and ownership control strategy (i.e. board seat and syndication)‐related contingencies moderate the relationship between historical military conflict and cross‐border performance. Collectively, our findings shed light on the presence of intergroup interaction challenges and mistrust when investing in cross‐border VC deals and demonstrate channels to mitigate their adverse effects.

Beneficial, Harmful, or Both? Effects of Corporate Venture Capital and Alliance Activity on Product Recalls

Despite growing numbers of corporate venture capital (CVC) deals and alliances, their effectiveness is not guaranteed. This paper investigates the positive and negative impacts of CVC and alliance activity on product safety under different levels of market turbulence. Using a resource-based learning perspective and panel data from large U.S. firms, we find that both CVC and alliance activity have inverted U-shaped relationships with product recall likelihood. Market turbulence moderates both relationships, but differently. We discuss how learning theory complements the resource-based view to understand why no or rather bold external venturing are less harmful than small-scale “stuck-in-the-middle” initiatives.

Skin in the Game: An Analysis of Venture Capital Investment in Dermatology from 2002 to 2021

Skin in the Game: An Analysis of Venture Capital Investment in Dermatology from 2002 to 2021

Industry-specific specialization in venture capitalists’ internationalization decisions

This study considers the impact of venture capitalists’ industry specialization on cross-border investment decisions. The article argues that specialized venture capitalists’ liability of foreignness is lower in specific international markets as assessments of the market and the behaviour of market participants are facilitated through industry-specific learning effects. Specialization leads to lower risk in cross-border investments from a venture capitalist’s point of view. With increasing deal-specificity, the support and value enhancement of a foreign portfolio company are ensured in international markets due to the investor’s specialization. A multilevel investigation of 46,525 worldwide venture capital deals from 2001 to 2019 in 69 countries shows a positive relationship between venture capitalists’ industry specialization and internationality. The results show that the likelihood of a cross-border deal increases with higher levels of industry specialization. Furthermore, this effect is moderated by determinants at the institutional and portfolio company levels, reflecting the degree of information asymmetry between the venture capital firm and the portfolio company.

“Catch me if you can” on drivers of venture capital investment in Africa

AbstractThis paper investigates the determinants of venture capital investments across 25 African countries over the period 2014–2019. In particular, it considers the significance of innovation and digitalization in Africa's venture capital activity. The results show that digital infrastructure, high‐technology exports, internet coverage, market size, minority investor protection and government effectiveness are the main drivers of venture capital deals in Africa over the period examined. More generally, these findings highlight that digital infrastructure and connectivity, innovation and institutional frameworks all play an important role in shaping a favorable environment to attract venture capital funding.

Can Entrepreneurial Ecosystems Optimize the Impact of Mega-sport Events? Evidence from the 2014 Fifa World Cup And 2016 Summer Olympic Games in Brazil

Entrepreneurial ecosystems (EE) have emerged as a viable method for stimulating traditional measures of economic development. In parallel, the effect of mega-sport events (MSEs) on economic development has been documented as perfunctory at best, despite the best efforts of municipalities and sport governing bodies. A natural extension of these lines of work asks whether EEs can play a role in enhancing the impact of MSEs within a host region. Therefore, this study sought to assess how a nation's EEs affected innovation outcomes during the hosting of two back-to-back MSEs. Using the 2014 FIFA World Cup and 2016 Summer Olympic Games as the context, a sample of 2,951 venture capital transactions made to startups in South America were analyzed using a generalized policy analysis framework. The findings suggest that a well-established EE may have helped enhance venture capital availability during the time of the MSEs, but that a less robust EE did not generate any positive effects. These findings bolster the economic work documenting that adequate resources and infrastructure are prerequisites for host regions to realize benefits from MSEs, not an outcome to leverage MSEs toward.

Big Tech platform acquisitions of start-ups and venture capital funding for innovation

This paper investigates the effects of “Big Tech” platform acquisitions on venture capital (VC) funding for start-ups. We analyze 32,367 venture capital deals between 2010 and 2020, and 392 tech start-up acquisitions by Google, Facebook, Amazon, Apple, and Microsoft. Results obtained with fixed effects panel and differences-in-differences estimators reveal a positive, statistically significant, average effect of Big Tech start-up acquisitions on worldwide, venture capital activity. Positive effects were also found for the United States and Europe. However, the findings suggest that the effects are transient and fade away after several quarters. Because venture capitalists fund start-ups to enable entrepreneurial innovation, this approach also informs our understanding of the repercussions of these acquisitions on the start-up innovation ecosystem. The large number of observations over an extended period unlocks insights into historical patterns that are relevant for the design of digital platform policies.

Syndication networks and company survival: evidence from European venture capital deals

ABSTRACT This study investigates the phenomenon of syndication in the venture capital industry. Investments conducted by syndicates are believed to have a better chance of being successful, which can be measured by the survival probability of portfolio companies or by successful exits. Using a novel and large dataset covering several countries, our analysis shows that investors’ strong network ties are associated with the success of portfolio companies in Europe. We also demonstrate differences in the association of network centrality with survival between different financing rounds, with the former being more important in early-stage investments and in the first round of financing. Furthermore, we show a strong association of investors’ network ties with the sales growth of portfolio companies before and after the deal, which is consistent in both selection and value-added channels. Finally, we explicitly account for the endogeneity of syndicate formation and show that the results hold if we instrument for venture firms’ network properties, as indicated by significant and correspondingly larger coefficients.

Practical Applications of LBO and VC Investments in Recent Crises

In <b>LBO and VC Investments in Recent Crises</b>, published in the Spring 2021 issue of <b><i>The Journal of Alternative Investments</i></b>, <b>Marcel Stark (Livingstone Partners)</b> and <b>Rainer Lauterbach (ISM International School of Management)</b> investigate reasons for the outperformance of private equity (PE) funds relative to public equity. They examine leveraged buyout (LBO) and venture capital (VC) deals and deal flow to industry sectors over time. The authors focus on the dot-com crisis from 2000 to 2002 and the financial crisis from 2007 to 2009. To determine which industries may be relatively resilient to market downturns, they rank the performance of 12 industry sectors over the period studied and during the two crises. Their evidence suggests that some LBO firms and VC firms change their industry focus during crises in a manner that partially explains their outperformance relative to public equity funds. <b>TOPICS:</b>Private equity, financial crises and financial market history, performance measurement

The partner next door? The effect of micro-geographical proximity on intra-cluster inter-organizational relationships

Substantial research has focused on how innovation is influenced by geography from a macro perspective (e.g., at the country, state, or metropolitan level). However, less attention has been paid to how innovation is configured within a cluster from a micro perspective (e.g., at the district or firm level within a city), i.e., the “micro-geographical proximity” within a cluster. With this paper, we aim to “zoom into” a technology cluster to study the role of the inter-organizational micro-geographical proximity for the establishment of knowledge transfer relationships. Specifically, we analyse whether and how the micro-geographical proximity is related to the formation of three different types of inter-organizational relationships: venture capital (VC) deals, intellectual property (IP) transfer agreements, and R&D strategic alliances. We take empirical evidence from the biopharma cluster in the Greater Boston Area. Our findings suggest the importance of micro-geographical proximity for the establishment of VC deals and IP transfer agreements, which emphasizes the importance of adopting a micro-geographical perspective to highlight this “neighbourhood effect”, which would not be possible when considering spatial proximity at the macro level.

The rise of urban tech: how innovations for cities come from cities

ABSTRACT This research investigates the economic geography of urban technology, or ‘urban tech’, start-up enterprises. Comprised of ride-hailing, co-living, co-working, smart cities and other urban-oriented activities, urban tech is a suite of innovations that enable and are premised upon growing urbanization. We investigate where urban tech comes from by analysing Pitchbook, a database of venture capital deals, to chart the evolution and geography of urban tech start-up firms. We show urban tech firms to be highly clustered in two kinds of places: specialized tech hubs such as the San Francisco Bay Area and large cities such as New York, London and Beijing. Furthermore, we find that urban tech geography is associated with two classes of factors: the scale of existing tech activity, and the size and extent of metro areas. Together these findings suggest that the geography of urban tech is shaped by the innovative capabilities of urban areas and, to a lesser extent, by urbanization itself. Urban tech investment is less common in areas associated with ‘Industry 4.0’ industrial policy.

Structuring and financing private equity and venture capital transactions in Luxembourg

Purpose Luxembourg is the jurisdiction of choice for many private equity and venture capital investors/funds. Though the optimum balance of financing instruments in relation to any structure varies according to its particular circumstances, one factor that all Luxembourg domiciled FDI structures have in common is the requirement for an appropriate level of equity investment. This article intends to summarize some of the topics frequently encountered in relation to equity structuring choices. Design/methodology/approach Author details the different steps and choices available to investors and funds. The article offers answers to questions to provide a broad, yet detailed, overview of the process and journey; from selecting the vehicle right through to distributing to investors, governance, and compliance. Findings To avoid an expensive mistake, it is paramount that the private equity or venture capital investors and management team receive detailed advice to ensure: (i) the deal is structured in the most tax efficient manner possible and the commercial deal is suitable for all parties, and (ii) the deal is structured in a manner which is effective under Luxembourg law, for both tax and legal purposes. Practical implications It is important that non-Luxembourg lawyers are able to identify key issues when negotiating the terms of the investment documents, in particular, the articles of association and shareholders' agreement. Originality/value Practical guidance from Luxembourg lawyer specializing in corporate law, mergers and acquisitions, venture capital and private equity transactions.

Practical Applications of LBO and VC Investments in Recent Crises

In <b>LBO and VC Investments in Recent Crises</b>, published in the Spring 2021 issue of <b><i>The Journal of Alternative Investments</i></b>, <b>Marcel Stark (Livingstone Partners)</b> and <b>Rainer Lauterbach (ISM International School of Management)</b> investigate reasons for the outperformance of private equity (PE) funds relative to public equity. They examine leveraged buyout (LBO) and venture capital (VC) deals and deal flow to industry sectors over time. The authors focus on the dot-com crisis from 2000 to 2002 and the financial crisis from 2007 to 2009. To determine which industries may be relatively resilient to market downturns, they rank the performance of 12 industry sectors over the period studied and during the two crises. Their evidence suggests that some LBO firms and VC firms change their industry focus during crises in a manner that partially explains their outperformance relative to public equity funds. <b>TOPICS:</b>Private equity, financial crises and financial market history, performance measurement

Kill Zones? Measuring the Impact of Big Tech Start-up Acquisitions on Venture Capital Activity

This paper investigates the effects of acquisitions by “big techs” on venture capital (VC) funding for start-up companies. Because of the strong association between VC investment and innovation, this approach also sheds light on the repercussions of big tech start-up acquisitions on innovation. We analyze observations on more than 32,000 venture capital deals in 173 different segments of the technology industry and nearly 400 tech start-up acquisitions made worldwide between 2010 and 2020 by Google, Facebook, Amazon, Apple, and Microsoft. Results obtained with fixed effects panel and differences-in-differences estimators reveal a positive, causal impact of big tech start-up acquisitions on venture capital activity. However, the findings suggest that the effects are transient and fade away after several quarters. These insights are relevant for the current policy discussions on limiting the ability of big tech companies to acquire start-ups.

Low Risk and High Return? Political Connections in Venture Capital Investments

Venture capital (VC) firms are characterized by investing in high-risk/high-return deals. Drawing upon the influence rent perspective, our study finds that the risk-return relation of VC investments can be manipulated and distorted through political influence. Based on 8,748 VC deals made by 359 VC firms in China, it shows that politically-connected VC (PVC) firms tend to invest in late stage companies (low-risk). Moreover, PVC firms exit VC deals significantly more quickly and demonstrate higher investment returns than other VC firms (high-return). Finally, we show that PVC-bundled firms (i.e., VC firms closely following PVCs via co-invest relationships) are endorsed with setting-specific influence rents and can also access to low-risk/high-return VC deals when co-invest with PVC firms.

Audience Expertise and Category Distances: A study in the Venture Capital Industry (2000-2017)

In research on social evaluations and market categories, the extent to which audience members’ expertise dimensions – breadth and depth – influence firm valuation has been largely ignored. Furthermore, category research has overlooked the consequences of the nested disposition of categories. Using a dataset of around 29,000 venture capital deals worldwide between 2000 and 2017, we address these gaps by examining the effect of investees’ intra-category distance, beyond inter-category distance, as well as investors’ expertise breadth and depth. Our findings provide evidence that both inter- and intra-category distances positively impact valuation as that those effects are contingent on investors’ expertise breadth and depth. Our findings contribute to research on social evaluations and market categories.

Practical Applications of LBO and VC Investments in Recent Crises

In <b>LBO and VC Investments in Recent Crises</b>, published in the Spring 2021 issue of <b><i>The Journal of Alternative Investments</i></b>, <b>Marcel Stark (Livingstone Partners)</b> and <b>Rainer Lauterbach (ISM International School of Management)</b> investigate reasons for the outperformance of private equity (PE) funds relative to public equity. They examine leveraged buyout (LBO) and venture capital (VC) deals and deal flow to industry sectors over time. The authors focus on the dot-com crisis from 2000 to 2002 and the financial crisis from 2007 to 2009. To determine which industries may be relatively resilient to market downturns, they rank the performance of 12 industry sectors over the period studied and during the two crises. Their evidence suggests that some LBO firms and VC firms change their industry focus during crises in a manner that partially explains their outperformance relative to public equity funds. <b>TOPICS:</b>Private equity, financial crises and financial market history, performance measurement