Venture Capital Flows Research Articles

Contracting Frictions and Cross-Border Capital Flows: Evidence from Venture Capital

Analyzing a large sample of cross-border investments by U.S. venture capital firms, we find that average round sizes and the fraction of financing raised in the first round are larger for companies in countries with poorer legal enforcement. This evidence, which is consistent with third-best contracting where investors take larger stakes to mitigate contractual enforcement problems, suggests that the of investments in weak enforcement countries may be less than an optimal. We develop a contracting friction measure, based on the degree of sub-optimal staging, and find that it is negatively related to aggregate cross-border venture capital flows. We interpret the evidence as consistent with a staging channel through which frictions that lead to third-best contracting and sub-optimal limit cross-border investment.

The Impact of Economic Integration on Cross–Border Venture Capital Investments: Evidence from the European Union

Despite major policies surrounding economic integration among countries (e.g., the European Union [EU], North Atlantic Free Trade Area, and Mercosur), the theoretical and empirical research addressing the impact of such policies on various countries’ entrepreneurial activities has yet to fully emerge. To address this issue, this paper draws on institutional, economic, and entrepreneurship literatures to examine if two specific economic integration mechanisms, namely market and currency commonality, increase cross–border venture capital flows made by participating nations in the EU. Findings suggest that broad scale economic integration policies do influence the extent of foreign venture capital investments made into other member countries.

The Environmental Factors and Venture Capital Flows: The European Experience

Venture Capital has grown dramatically in European countries during the past decade. Despite lack of entrepreneurial culture, fragmented market, lack of capital mobility, state domination, ineffective second tier market in Europe, the venture capital flows continued unabated throughout 1980s. However, the growth rate of venture capital has not been at the same rate in all the European countries. It has been observed that the process of venture flows is affected by the various environmental factors. An attempt is made in this paper to analyse the process of venture capital flows, identify the environmental factors and venture capital flows in five European countries namely United Kingdom, Germany, France, Italy and Spain over a period of nine years. The empirical results clearly indicate a high degree of relationship between venture capital flows and stock market indices, initial public offerings, interest rates and technology in all the five European countries. Capital gains tax rate has no impact or little impact on venture capital flows in Germany, Italy and Spain. In case of United Kingdom and France, there is a positive relationship between capital gains tax and venture capital flows. The findings of the study have far reaching implications for the venture capitalist, investors, entrepreneurs and researchers. Constructive policy related to interest rates, technology, capital market and capital gains tax is crucial for the growth of venture capital industry and hence entrepreneurial growth. Finally, the study had identified few specific areas for further research in venture capital industry both in Europe and India.

98/03480 Residential energy demand and the interaction of price and temperature: British experimental evidence: Henley, A. and Peirson, J. Energy Economics, 1998, 20, (2), 157–171

We study the liquidity properties of private equity cash flows using data from 837 buyout and venture capital funds from 1984 to 2010. Most cash flow variation at a point in time is diversifiable — either idiosyncratic to a given fund or explained by the fund’s age. Both capital calls and distributions also have a procyclical systematic component. Distributions are more sensitive than calls, implying procyclical aggregate net cash flows. A consequence is that the well-known finding that funds raised in hot markets underperform in absolute terms is sharply attenuated when comparing to public equities. Consistent with a liquidity premium for calling capital in bad times, we find that funds with a relatively high propensity to do so perform better in both absolute and relative terms. Venture capital cash flows and performance are considerably more cyclical than buyout, and the links between cyclical cash flows and performance are likewise stronger.

Catalyzing capital for Canada's life sciences industry

Canada's biotech sector ranks within the top five globally, but its life sciences venture capital (VC) industry is among the worlds weakest. This makes for an interesting case study in understanding the disconnect between low levels of VC and a healthy innovation ecosystem in terms of R&D spending, skilled workforce and enterprise support. Three key provinces (Quebec, Ontario and British Columbia) that have taken significantly different approaches to attracting VC are large enough to attract as much government investment as whole emerging markets. The aim of this article is to present evidence from a Canadian natural economic experiment in order to evaluate the effectiveness of varying government policies in attracting VC investment, to illustrate how these policies need tailoring to individual sub-sectors of the life sciences sector, and to highlight potential policy mechanisms that may be applicable beyond Canada's borders. We employ VC returns on investment (ROI) and exit data as a proxy for our evaluation. Our results suggest that government biotechnology investment needs to be structured end-to-end from early to late stage in order to be successful, that prevalence of private and international VC flows is critical for generating market efficiency, and that there is an ‘optimal’ efficient amount of capital before ROI result in diminishing returns.