Venture Capital Funds Research Articles

Do Public Financial Statements Influence Private Equity and Venture Capital Financing?

ABSTRACT We study whether the availability of public audited financial statements influences the probability of private firms receiving private firm equity financing. Using a setting in the EU with plausibly exogenous variability in the extent to which private firms issue public financial reports, we find that private firms subject to public reporting requirements have a higher probability of obtaining private equity (PE) financing. In addition, we show that the increase in PE financing occurs in industries in which PE funds have prior experience. Last, we show that our findings also extend to other forms of private firm financing such as private firm acquisitions and venture capital. Our evidence highlights the importance of public financial statements in the decision-making of PE investors, an important and understudied segment of the private firm financing market. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M2; G24; G34.

Entrepreneurial finance and sustainability: Do institutional investors impact the ESG performance of SMEs?

Institutional investors improve the environmental, social, and governance (ESG) performance of small- and medium-sized enterprises (SMEs). Our difference-in-differences framework shows that the backing from private equity and venture capital funds leads to an increase in SMEs’ externally validated ESG scores compared to their matched non-investor-backed peers. Consistent with “ESG-as-insurance” theory, the ESG performance of SMEs with a higher probability of failure is more likely to benefit from the backing of institutional investors. This positive effect is heterogeneous; while SMEs with high ex-ante ESG performance further improve their ESG performance following institutional investor backing, SMEs with low ex-ante ESG performance are unlikely to implement any improvements. Entrepreneurial finance seems to help sustainable entrepreneurs transform into “sustainability champions,” while neglecting the betterment of non-sustainable SMEs.

The Coming of Age of Venture Capital Investing in the New Fields of the Emerging MOGI Sectors: A Snapshot for the Future: Part 2

Venture Capital (VC) has become a chosen tool of investment in the areas of business where there seems to be potent promise but yet immature in terms of market, customer acceptance and political dynamics. Such uncertainties make bankers both nervous and hesitant,and where the risk takers like venture capitals thrive. In the first part of the article we discussed about how mineral,oil& gas and energy companies are becoming both investors of VC and attractive destinations for investment by other VCs. The VCs are mostly either Private Equities (PE) or the venture funds of established companies. They mostly invest in emerging technologies and risky, yet promising, opportunities. In this part we discuss how the risks are assessed and mitigated, what takes one to be the VC fund manager and the current dynamics in the VC investments. Risky as they are, VC investors always look for reasonable profit to exit investments, for the next set of investors to pursue the opportunities with the omnipresent risks.

Does the disclosure of ESG information by private equity firms impact the success of their fundraising efforts?

This study examines the impact of private equity fund managers' (GPs') ESG disclosure on fundraising. To this end, a sample of global private equity and venture capital funds that completed fundraising between 2020 and 2022 is employed. Our findings indicate that an increase in ESG disclosure by GPs is associated with an increase in fundraising. This indicates that GPs' ESG disclosure diminishes information asymmetry and has a favorable impact on fundraising. Conversely, the level of ESG disclosure among limited partners (LPs) has no significant impact on the relationship between GPs' ESG disclosure level and fundraising. The findings of this study have significant implications for private equity stakeholders, including GPs, given the current context of declining investment demand due to rising interest rates, recessionary concerns, poor performance and tighter regulations on private equity management. In this environment, ESG disclosure is becoming increasingly challenging for private equity firms to utilize as a fundraising strategy.

Insights for sustainable business practices: Comparative impact of independent and corporate venture capital funding on financial and environmental performance

This study aims to analyze the effects of venture capital (VC) financing schemes on the financial and environmental performance of their VC-backed companies. This research leverages a dataset including 325 U.S. firms between 2002 and 2022 and examines two issues of interest: independent venture capital (IVC) and corporate venture capital (CVC) funding. The results show that IVC-backed companies have significantly better environmental, social, and governance (ESG) ratings and emit fewer greenhouse gases (GHG) emissions when compared to companies backed by CVC. This highlights that the function of IVC is to improve the environmental sustainability of businesses. Together this helps provide a valuable perspective about which VC models (CVC, IVC) does have an impact on how businesses pursue sustainability practices alongside financial performance. This paper contributes to the sustainable entrepreneurship literature by focusing on the importance of funding types with performing sustainable practices.

Biopharmaceutical pipeline funded by venture capital firms, 2014 to 2024.

Venture capital (VC) firms fund biopharmaceutical research and development (R&D) while incurring substantial financial risk. VC firms seek to invest in clinical areas with the greatest potential for financial return. Using a combination of data for clinical trials and VC investment deals between January 2014 and March 2024, we found that approximately 75% of VC investments were allocated to clinical trials studying small-molecule drugs compared to biologics or gene therapies, without substantial changes over the study period. Most of VC firms' investment in biopharmaceutical R&D was concentrated in phase 1 and phase 2 clinical trials. This trend has increased in recent years, with phase 1 trials accounting for nearly half of total deals and capital investments in 2023. VC investments were concentrated in several therapeutic areas, including cancer.

A robust financing theory of ICOs under demand uncertainty of products of token platforms

PurposeThe market products produced by Initial Coin Offerings (ICO) platforms are often relatively new and have no previous transaction records and therefore are hard to estimate for its demand. The purpose is to study the impacts of the degree of ambiguity aversion of entrepreneurs to demand uncertainty on the ICO financing ratio, the optimal expected output, the optimal efforts and the token price.Design/methodology/approachIn an optimal ICO design, we introduce demand uncertainty of the product and establish a robust optimization method to solve the ICO optimal design. We compare ICO financing and the general venture capital (VC) financing model. We analyze the impact of demand uncertainty on the optimal ICO financing ratio.FindingsFindings include that the ICO financing ratio is positively related to the degree of ambiguity aversion, the token price is negatively related to the degree of ambiguity aversion and the “ambiguity premium” exists in the ICO market, the optimal effort levels are negatively related with the ICO financing ratio, but positively related with token price, and in the environment of high production cost, VC financing is not as good as ICO financing.Originality/valueWe develop a robust ICO financing model by assuming that the entrepreneur is ambiguity aversive to the demand uncertainty. Analyze the impact of the degree of ambiguity aversion on the ICO financing ratio in theory and find that the entrepreneur can raise funds with the higher ICO token ratio when she has a larger degree of ambiguity aversion to the demand uncertainty. Extend the impact analysis of the degree of ambiguity aversion on the expected token price and find a negative relationship between the expected token price and the degree of ambiguity aversion of the entrepreneur to the demand uncertainty.

From adversity to advancement: uncovering how race and class shape Black tech entrepreneurial experiences

Abstract Black people in the technology industry face various barriers, from encountering micro-aggressions from their coworkers to facing blocked advancement in their professional careers. These challenges are particularly pronounced in entrepreneurship, where Black founders receive just one percent of all venture capital funding. But amidst these shared struggles, questions arise as to what ways, if any, these experiences vary. Using an intersectional lens to inductively study forty-six Black tech entrepreneurs in Silicon Valley, I reveal how class shapes Black entrepreneurial processes differently at various phases of entrepreneurship. Lower- and middle-class Black entrepreneurs faced more financial and network-based obstacles as they struggled to raise money from family and friends and had fewer effective networks when starting their businesses. Conversely, Black upper-class entrepreneurs had familial wealth and personal networks that aided their entrepreneurial efforts but faced challenges as they were not a “racial fit” within the industry. Consequently, they perceived that they confronted more instances of individual-level discrimination. Black lower and middle-class entrepreneurs were less likely to discuss instances of perceived individual-level discrimination because many had not reached the step of meeting with an investor. This research offers unique and nuanced insights into how class shapes the entrepreneurial pursuits of Black founders. Contributions to the sociology of race and ethnicity, intersectionality, and the sociology of entrepreneurship are also discussed.

Predicting startup success using two bias-free machine learning: resolving data imbalance using generative adversarial networks

The success of newly established companies holds significant implications for community development and economic growth. However, startups often grapple with heightened vulnerability to market volatility, which can lead to early-stage failures. This study aims to predict startup success by addressing biases in existing predictive models. Previous research has examined external factors such as market dynamics and internal elements like founder characteristics.While such efforts have contributed to understanding success mechanisms, challenges persist, including predictor and learning data biases. This study proposes a novel approach by constructing independent variables using early-stage information, incorporating founder attributes, and mitigating class imbalance through generative adversarial networks (GAN). Our proposed model aims to enhance investment decision-making efficiency and effectiveness, offering a valuable decision support system for various venture capital funds.

Increasing venture capital investment in spinal surgery: an analysis of investments from 2000 to 2023

BACKGROUND CONTEXTVenture capital (VC) plays a vital role in advancing spinal surgery technologies, driven by the growing burden of spinal disorders and high healthcare costs. Despite increasing interest, trends in VC funding for spinal surgery remain understudied. PURPOSEThis study aimed to examine temporal and thematic trends in VC investments in spinal surgery companies from 2000 to 2023. STUDY DESIGN/SETTINGA retrospective cross-sectional study analyzing VC investment trends in privately held US-based spinal surgery companies. METHODSUsing the PitchBook database, we analyzed 1001 VC investments in 227 spinal surgery companies between 2000 and 2023. Investments were categorized into surgical devices, noninvasive devices, biotechnology, surgical software, and clinical services. Total and annual investments were quantified in USD. RESULTSFrom 2000 to 2023, $5.37 billion was invested in spine surgery, with nonsurgical devices receiving the largest share (42.6%), followed by surgical devices (26.3%) and biotechnology (22.2%). Annual investment increased by 1782%, with a decline in 2023 likely due to macroeconomic factors. CONCLUSIONSVC funding in spinal surgery has grown significantly, especially in noninvasive technologies. Further research is needed to assess the long-term impact of these investments and explore alternative financing models.

Year of founding as a determinant of start-up success

This paper examines the impact of year of founding and type of funding on the growth of startups, as measured by average number of employees, and analyses the differences between different business areas. The data was obtained from a large database of startups and was thoroughly cleaned before analysis. Descriptive statistics, correlation analysis and cluster analysis by funding type and business area were used. The results show that year of founding and funding type are significant factors influencing startup growth. Startups funded through Private Equity (PE) Growth had the highest average number of employees, while startups with Series B and Later Stage VC funding showed strong and stable growth. In addition, specific trends were identified in different business areas. Sectors such as Mobility & Transportation and Sales and Marketing show strong growth influenced by the year of founding, while sectors such as Govtech have less growth likely due to specific regulatory requirements. The study highlights the importance of year of founding and type of funding for startup growth and provides valuable insights for founders and investors when planning expansion and funding strategies. The results also suggest the need for further research that considers geographic, macroeconomic and qualitative aspects of startup success.

Impact orientation and venture capital financing: The interplay of governmental, social impact and traditional venture capital

In addition to traditional venture capital (VC), governmental VC and social impact VC investors have emerged as alternatives to fund entrepreneurial ventures, especially start-ups that incorporate social and/or environmental objectives into commercial operations. Using a sample of 15,510 VC-backed start-ups, we show that impact-oriented ventures are more likely to receive funding from alternative VCs. Both social and environmental orientations increase the chances that a start-up secures funding from impact VCs while social orientation drives results for government VCs. Importantly, we also show that impact-oriented ventures are more likely to secure investment from traditional VCs when impact and governmental VCs co-invest.

MedTech start-ups: A comprehensive scoping review of current research trends and future directions.

Medical start-ups (MedTech) significantly contribute to the development and commercialization of innovative healthcare solutions, driving advancements in technology, enhancing treatment effectiveness, and supporting public health. This study explores the main themes and concepts related to MedTech start-ups, examines the research methods used, and identifies major gaps in the literature. A scoping literature review was performed by searching the Scopus, PubMed, and Web of Science databases for publications from 2012 to 2023, focusing on MedTech start-ups in titles, abstracts, and keywords. References were analyzed using the Bibliometrix package in R, and a coupling network analysis was conducted, visualizing results on a Coupling Map to identify key research themes and gaps. The research identified 480 unique articles on MedTech start-ups. After removing duplicates and following a PRISMA-based assessment, 79 articles were included in the review. The studies predominantly focused on organizations, including start-ups and Venture Capital funds (46%). Most articles (60%) used qualitative methods, 25% employed mixed methods, and 15% used quantitative methods. Geographically, 63% of articles focused on a single country, primarily the USA (35%), followed by Iran, Sweden, Switzerland, China, and Japan (2-4% each). Coupling analysis identified five topic clusters: crowdfunding for medical research, innovation in medical technology, new product development, digital start-ups, and the venture capital industry. This review highlights the significant role of MedTech start-ups in advancing healthcare innovations despite challenges like regulatory hurdles and high capital requirements. The literature emphasizes the importance of collaboration among universities, industry, and government for successful commercialization. The geographic concentration in the USA indicates a need for more inclusive research. Crowdfunding and venture capital emerge as crucial funding sources, suggesting strategies to mitigate risks and enhance innovation success.

Venture Capital Investment and Growth of Small and Medium Enterprises (SMES) In Bayelsa State, Nigeria

The paper explored the impact of venture funding on the growth of Small and Medium Enterprises (SMEs) in Bayelsa State, Nigeria. Specifically, it investigates the effects of different venture capital financing methods, the cost of venture capital, and venture capital management support on sales growth within the SME sector. Using a survey research design, data was collected from 300 registered SMEs in Bayelsa State. Primary data was gathered through questionnaire instruments and analyzed using descriptive and inferential statistics. The findings, revealed through regression analysis, indicate that capital financing positively affects SMEs' sales growth, while the cost of capital also exerts a positive influence on sales growth. However, management support exhibits a negative effect on sales growth within SMEs. These results underscore the significance of venture capital financing mechanisms in fostering the growth of SMEs in Bayelsa State, Nigeria, while also highlighting potential areas for improvement in venture capital management practices to better support SME development.

Inside the Black Box: Understanding Organizational Decision-Making Processes in VC Funds

Inside the Black Box: Understanding Organizational Decision-Making Processes in VC Funds

Founder Gender and Firm Exit Routes: The Mediating Roles of Firm Size and VC Financing

Founder Gender and Firm Exit Routes: The Mediating Roles of Firm Size and VC Financing

Interactive Effects of Gender, Quality Signals, and Industry in Early-Stage Venture Capital Funding

Interactive Effects of Gender, Quality Signals, and Industry in Early-Stage Venture Capital Funding

Greening the Portfolio: LP Preferences for Social Impact and Sustainability Orientation of VC Funds

Greening the Portfolio: LP Preferences for Social Impact and Sustainability Orientation of VC Funds

Venture capital exit after venture IPO

AbstractResearch SummaryVenture capital firms (VCs) sometimes continue to hold significant equity stakes in entrepreneurial ventures after venture IPO. The information economics view suggests that retaining equity signals VC commitment and venture quality. This study conceptualizes retaining equity as holding an exchange option, the option to exchange VCs' own valuation of IPO ventures for the market's valuation. Holding this option allows VCs to benefit from the ventures' upside potential. Since exit amounts to giving up the option, the option value represents an opportunity cost of exit. VCs may delay exit if this option is sufficiently valuable. The study examines two key conditions that interact to increase the value of this option: uncertainty and positive private information. This study contributes to research on VC exit and real options.Managerial SummaryWhen do VCs retain equity rather than exit after venture IPO? Researchers have addressed the impact of signaling, cash constraints, human capital constraints, blockholding, VC fund performance, portfolio diversification and institutional features. We identify a previously unrecognized driver: to retain the opportunity to benefit from an IPO venture's upside potential that is yet to be fully recognized or realized. We submit that VCs' incentive to retain equity increases with uncertainty in the venture's industry, and VCs' positive private information as indicated by venture patent applications and positive market surprises in the venture's industry. We find largely supportive evidence for the positive joint effect of uncertainty and private information on the decision to retain equity within the first year or even two years after IPO lockup expiration.

Brexit and the fintech revolution in Europe: lessons from the Bulgarian digital finance sector

Purpose This paper aims to investigate the drivers of the resilience of the fintech sector in emerging Europe (EU) by analyzing the performance of 128 Bulgarian fintech companies in the period around the Referendum for Brexit in 2016. The Referendum was followed by a rapid growth of the Bulgarian fintech sector at a moment when venture capital funding was limited, which challenged firms to improve their fundamentals. Design/methodology/approach This empirical paper uses descriptive and panel data analysis based on the firm balance sheet and income statement data at the annual level. Findings The results show that larger and better-capitalized firms, which outsource their non-core activities and focus on their main competitive strengths, tend to have higher operating income and profit. The authors also find positive real-economy effects as these companies hire more actively to maintain growth. The results are primarily driven by the post-Brexit period of 2016–2019 when the authors find a tighter link between performance and firm fundamentals. These results have important managerial and policy implications and provide interesting directions for future research. Practical implications The findings have important management and policy implications. The authors argue that the flexibility of the Bulgarian fintech cluster, including the practice of Bulgarian fintech startups to outsource non-core activities; the readiness of universities to open new master programs to address firm demand for skilled labor and the startup-friendly environment in the main cluster hotspot, Sofia, has contributed to the resilience of the sector and can explain the drivers behind our findings. Fintech firms are very efficient in utilizing external services to foster their performance and growth, which may suggest that public policies that provide financial support for cloud services and outsourcing for startups during downturns or crises may improve economic growth and may have positive externalities for the supporting sectors that provide these services. Originality/value This paper fulfills an identified need to study the drivers of Fintech performance to identify best practices for managerial actions during economic or political crises, as well as government policy recommendations. To the best of the authors knowledge, this is one of the first empirical academic studies that examine the impact of Brexit on the European Fintech sector and real economy. The identified managerial strategies for ensuring regional resilience to economic crises and political shocks can be applied in various settings within and outside the EU.