Venture Capital Market Research Articles

How to Guide Venture Capital to Startups? Evidence from China's Science and Technology Innovation Board

Venture capital (VC) plays a vital role in supporting startups. However, in many developing economies, venture capitalists' tendency to prioritize later-stage over early-stage investments constrains their capacity to fund startups. China's recent Science and Technology Innovation Board (STAR) market establishment, with its focus on innovation ability over profitability, enables high-tech startups to list in early stages. This improves exit prospects for VCs investing to the early-stage startups. Employing a regression discontinuity design, our empirical analysis demonstrates that the STAR market establishment attracts additional capital to the VC market and guides VCs toward earlier-stage startups. Mechanism analysis indicates these effects stem from improved VC exit returns rather than heightened exit activities. Our findings underscore the efficacy of specialized stock markets for startups in channeling venture capital towards small and early-stage enterprises. These findings provide valuable insights for developing countries seeking to leverage VC for startup growth.

Macroeconomic factors and venture capital market liquidity: evidence from Europe*

Macroeconomic factors and venture capital market liquidity: evidence from Europe*

Endorsement and firm financing: Evidence from government venture capital market in China

This study investigates the effect of government venture capital (GVC) investment on firm financing and its underlying mechanism, utilizing 31,299 firm-year observations from 2008 to 2022 in China. The findings reveal that GVC investment enhances target firms’ equity financing, and it is the "stamp of endorsement" by the GVC investment that enhances equity financing for firms. Through a series of tests, the mechanism for the impact of GVC investment on equity financing is established via increased government subsidies and reduced cost of equity. In addition, firms with higher market awareness about GVC and privately-owned firms benefit more in enhancing their equity financing; this further confirms that financing enhancement originates from the government's role through endorsement mechanism in venture capital investment. The results remain robust after several robustness checks.

Why do entrepreneurial firms switch lead venture capital? A double-sided matching perspective

This paper investigates the dynamics of a switch in the lead venture capital (VC) caused by a low degree of match between the entrepreneur and VC in the previous round of investing through theoretical and empirical analysis using a large sample from the Chinese venture capital market. The results show that the lower the degree of match is, the higher the likelihood that entrepreneurial firms will switch the lead VC. The rematching of firms and VCs is also a dynamic process of switching lead VCs in the venture capital market. Especially, in multiple rounds, for both subsamples of rising startup quality and rising VC quality, we find that the lower the matching degree in the previous round, the more likely a lead VC switch occurs. However, there is no significant difference in the effect of the matching degree in the previous round on the lead VC switch in the following round in both subsamples. We also show that a lead VC switch is more likely when startups are in the growth stage, mature stage, and high-tech industries. In addition, we confirm that a lead VC switch improves the success of startups. Specifically, whether the quality of a startup rises or falls, only lead VC switches at the early stage are conducive to the VC exits and the startup’s success. In the early stage, the lead VC switch is a great shot in the arm for the company’s success, whereas, in the later stage, the lead VC switch is only the icing on the cake.

Economic Policy Uncertainty and Syndication: Evidence from China’s Venture Capital Market

ABSTRACT This study investigates how economic policy uncertainty (EPU) impacts the syndication behaviors of venture capital firms (VCs). Analyzing data from China, we find that EPU boosts the likelihood that VCs take syndicated investments. When facing great EPU, compared with their domestic and private counterparts, foreign and state-backed VCs exhibit a greater propensity for syndication, particularly in collaboration with VCs from distinct capital backgrounds. Further, EPU reduces VCs’ risk-taking tendencies and exacerbates inadequate information exchange in the market, thereby making VCs more inclined to syndicate their investments. Finally, EPU adversely affects VCs’ exit performance, but syndication helps alleviate this impact.

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.

СПОСОБЫ И ОСОБЕННОСТИ ВЕНЧУРНОГО ФИНАНСИРОВАНИЯ ВЫСОКИХ ТЕХНОЛОГИЙ НА ОСНОВЕ БЛОКЧЕЙН: АНАЛИЗ МИРОВОГО ОПЫТА

in this article, authors examine the features of venture financing of high technologies in foreign countries. The definition of high technologies is given, the essence of venture financing is determined, and its organizational types are studied. Based on the analysis of the global venture capital investment market and the US experience, the features of high-tech venture financing in foreign countries are revealed.

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.

폐배터리 재활용 스타트업의 가치평가

Whilst the recent downward movement in venture capital market, venture investment in disruptive innovation technology has steadily increased. Amongst the rechargeable battery industry, in which Korean companies have secured global comparative advantages, is expected to show abnormal growth for the next several years. To pursue sustainable growth under the government’s strategic support and environmental regulations, it is necessary to establish a battery circular economy. Collecting and recycling used batteries is a key element of the battery circular economy that could stabilize supply chain and resolve the environmental issues. This case study analyzes Redwood Materials Inc., an U.S. firm specialized in battery recycling, and discuss how to estimate the firm value. Through the case analysis, we can understand the recent trends in the rechargeable battery and recycle industries in the U.S. and discuss the strategic directions of Korean battery firms. In addition, the analysis on the growth of an U.S. startup will help readers to discuss the role of venture capital in nurturing Korean startups to become global companies.

The Equilibrium Size and Value‐Added of Venture Capital

ABSTRACTI model positive sorting of entrepreneurs across the high and low value‐added segments of the venture capital market. Aiming to attract high‐quality entrepreneurs, inefficiently many venture capitalists (VCs) commit to provide high value‐added by forming small portfolios. This draws the marginal entrepreneur away from the low value‐added segment, reducing match quality in the high value‐added segment too. There is underinvestment. Multiple equilibria may emerge, and they differ in aggregate investment. The model rationalizes evidence on VC returns and value‐added along fundraising “waves” and when the cost of entrepreneurship falls, and generates untested predictions on the size and value‐added of venture capital.

The Impact of Regional and Segmental Factors on the Benefits and Risks of Venture Capital Financing

This paper presents an analysis of aspects of venture capital (VC) financing, focusing on risks and rewards, correlation with geographic location and industry. The results were obtained through statistical analysis of data from public startup databases and a questionnaire distributed to selected VC-funded startups. The aim of the paper was to analyze the risks and benefits of VC funding and the impact of regional and segment factors. The paper identifies the key benefits of VC funding as fast and flexible access to capital, while the key risks include loss of control over the business and high pressure on performance. The analysis suggests that the perceived riskiness of VC financing is strongly influenced by both geographic location and industry. Certain geographic locations were found to have an affinity for specific industries, suggesting regional specialization within the VC market. The paper reveals significant trends in funding, with the dominance of technology startups, business platforms and the HealthTech sector, and increasing activity in certain regions in recent years.

STARTUP ECOSYSTEM: THE LONG-TERM VALUE OF A SUSTAINABLE DEVELOPMENT STRATEGY FOR UKRAINE

Ukraine is a country with immense potential for entrepreneurship, but it faces significant challenges that can hinder the growth of its entrepreneurial ecosystem. This article explores the challenges that Ukrainian entrepreneurs face and how they can be overcome, as well as the role of government and other organizations in supporting entrepreneurship. One of the biggest challenges for Ukrainian entrepreneurs is access to funding. Ukraine has a developing financial market, and it can be difficult for entrepreneurs to secure loans or investments. This is com-pounded by the lack of a well-developed venture capital market, which makes it difficult for entrepreneurs to access the capital they need to grow their businesses. The article uses quantitative methods of research, modeling the influence of factors on the efficiency of the ecosystem

ПРИМЕНЕНИЕ ЦИФРОВЫХ ТЕХНОЛОГИЙ ДЛЯ ПОВЫШЕНИЯ ПРОЗРАЧНОСТИ И ЭФФЕКТИВНОСТИ ВЕНЧУРНОГО ФИНАНСИРОВАНИЯ

The article substantiates the importance of using digital technologies in venture financing in order to increase transparency and efficiency of financing processes. The main digital technologies of venture financing are identified and systematized, and the process of their application to increase the effectiveness of interaction between investors, startups and other participants in the venture capital market is disclosed. The structural schemes of the application of distributed registries and blockchain in venture financing are presented. The ability of digital technologies to significantly accelerate decision-making processes to reduce costs and risks, as well as simplify and expand access to information for capital market participants is shown. The main idea is that digital technologies can significantly speed up decision-making processes, reduce costs and risks, and improve access to information for participants in this market. Digital technologies for increasing transparency and efficiency of venture financing are systematized, their advantages and disadvantages are identified, and the scope of application is determined. The advantages and disadvantages of using basic digital technologies in venture financing are identified and formalized. It is concluded that the use of digital technologies in venture financing plays a key role in increasing transparency, reducing risk and improving the efficiency of this process. The material of the article is intended for entrepreneurs, investors and experts in the field of finance and innovation who are interested in studying the methods of applying venture financing for the effective development of their business in modern economic conditions.

Examining the post-COVID-19 Shifts in Startup Valuation Strategies: A Case Study of ABC Venture

The "winter tech" phenomenon, marked by employee layoffs and technology usage decline in leading Indonesian digital startups like Go To and Traveloka, is exacerbated by the COVID-19 pandemic, causing a widespread economic downturn, and revealing financial instability. Despite government support, persistent challenges, notably the correlation between layoffs and startup failures, underscore the role of venture capital. The research focuses on understanding venture capital factors, limitations in valuation methods, and addressing the impact of COVID-19 on venture capitalists and changes in startup valuation practices. This research employs semistructured interviews, primarily with WJA, ABC Venture's Vice President of Portfolio Management, to explore the company's investment strategies. The chosen method aligns with the research objective, offering flexibility for comprehensive insights. WJA's extensive experience and leadership position make him a key informant. The study uses a five-stage thematic analysis process to comprehensively analyze themes related to startup success factors based on interview text. The COVID-19 pandemic has impacted ABC Venture's investments, leading to market corrections and a slower investment pace. However, the rise of online service businesses has increased investment, aligning with the global venture capital market's historic high in 2021. ABC Ventures responds with a cautious approach, emphasizing pandemic-related risk assessment in startup evaluation. They actively seek comprehensive plans from startups outlining strategies for navigating the pandemic before considering funding, focusing on online-centric models, and discovering the "next big thing".

Funding gap in the Hungarian venture capital market

Our study investigates the size of the so-called financing gap in the Hungarian venture capital market, i.e. the amount that can potentially be lent out, which is currently not covered by the Hungarian financial intermediary system on a market basis. The relevant literature will be reviewed to assess the performance and characteristics of the Hungarian market. The Hungarian financial intermediation system, traditionally based on banking, underperforms in all segments of capital market financing, even by Central and Eastern European standards. In our research, we sought to find out whether the available sources of venture capital could meet market needs. Both the number and volume of transactions in the domestic venture capital and private equity markets are low by international standards, and the role of the state is below the average for CEE countries. The novelty of our analysis lies in the fact that there is no similar literature available in Hungary. Our estimation based on linear regression revealed a strong relationship between venture capital investment and current GDP. The difference between the estimated potential risk capital stock and the annual averages zrealized clearly shows the market gap. In addition to the public programmes already implemented, the annual amount of risk capital missing from the domestic market is in the order of EUR 12.5-31.6 million, i.e. roughly HUF 5.1-13.3 billion per year at the euro exchange rate at the time of analysis. If this resource were available, domestic startups would have greater growth opportunities. Our analysis suggests that not only a state presence but even an increase in it, seems justifiable (or at least worth exploring). The research was supported by the National Research, Development and Innovation Office (FK-142492).

An Investigation into the Determinants of Venture Capital Investment: Evidence from Emerging Economies of Asia Pacific

Since the 1980s–90s, Venture capital has grown to be widely considered as an effective source of funding for creative operations besides playing a pivotal role in the development of economies. Focusing primarily on sixteen Emerging economies of Asia-Pacific, the research sheds light on the determinants of venture capital, over the period 2006–2021, coinciding with the peak of venture capital activity in this region. By employing Panel regression analysis, incorporating fixed and random effects, and complementing the findings with Pairwise Granger Causality tests, this scholarly work offers a comprehensive understanding of the distributional and operational characteristics of the Asia-Pacific venture capital market. Moreover, it provides valuable insights for entrepreneurs and policymakers on how to efficiently foster venture capital activities in emergent economies.

Institutions and venture capital market development in sub‐Saharan Africa

AbstractWe investigate the critical interplay between economic institutions and political institutions and assess their influence on venture capital market development in sub‐Saharan Africa (SSA). To address endogeneity concern in our model specification, the two‐step system generalised method of moments was employed on a sample of 34 SSA countries from 2007 to 2018. The findings reveal that strengthening disaggregated measures of economic institutions, comprising legal system and property rights, size of government, sound money, regulations, and freedom to trade internationally spur venture capital market development in SSA. Finally, the evidence indicates that political institutions condition the influence of economic institutions on venture capital market development. The implications for policy are further discussed.

“Acquire and leave”: Effects of startups acquisitions by digital ecosystems

Digital ecosystems penetrate many areas of modern life, they integrate many services and are growing partially through acquiring start-ups. These can lead to a rise of their market power, which in turn has caused the increased attention of antitrust regulators in recent years . The new changes into the Russian antitrust law contain the requirement for scrutiny for mergers above 7 billion of rubbles. This additional criterion is designed to include the acquisitions of startups by digital ecosystems that currently do not need to be announced to the Russian antitrust service. As for economic literature, there is no consensus on the way mergers with startups affect markets, in particular, venture capital market. The purpose of this work is to assess the effects of mergers of digital ecosystems with Russian startups in different niches of the venture investment in these niches. Methodologically, our study is based on economic theory and particularly on industrial organisation, antitrust economics; we also use econometrics while estimating causal inferences. We perform econometric analysis of panel data and matching to evaluate the effect of mergers of digital ecosystems with startups. In our quantitative analysis we use data collected from the website Rusbase, which gathers information on deals with Russian startups building primarily on open sources. In our study, we conclude that niches where digital ecosystems more actively purchase or invest in startups tend to be lower investments, smaller total and average purchase prices, which may indicate some washing out of investments in such niches. However, the effect we see may be present due to the changing popularity of niches and/or bringing forward of investor decisions, and not to the kill zone that is claimed to be one of the downsides of such mergers, since we observe a short-term increase in the number of investment decisions in a niche during the period when a startup is acquired by the digital ecosystem.

Evaluation of startups through Internet platforms

The situation in the venture capital market is continually changing, as evidenced by the statistics on the use of venture investment pools. Experienced investors, reducing their risks, give preference to firmly established startups that are at intermediate and late stages of development, as well as those in the sphere of IT development and high technologies. This approach leads to a situation when investors do not notice quite a number of interesting, impressive and promising projects at their early and seed stages. In this regard, it is relevant to consider some methods aimed at the evaluation of startups at different stages of their development. The traditional methods of evaluating projects with no operational history are not suitable. The instruments for preparing startup business plans as well as discounting and compounding tools are relevant up to the entry point of the search for financial resources. In a real situation, a perspective innovative startup risks to be taken over as a result of the only available way of mobilising resources – through the inclusion of investors in the startup owners (shareholders) pool. Other traditional sources – internal funds and bank loans – limit a startup’s resource, most often at the seed stage, due to their limited scope and high cost of borrowed capital. As a rule, the borrowed capital in the form of bank loan is basically unavailable for startup initiation due to no ways to ensure repayment guarantees, while the possibility of relying on a business plan for a startup in the process of raising bank funds is a common misconception. In recent years, the impact of the development of specific Internet resources on the structure of investment in economy has been tangible. In addition to innovative ideas in entrepreneurship, a number of instruments specific of new processes in investing are being realised. Business angels, accelerators, startup-oriented Internet resources are shifting to the mechanisms of remote assessment of startup potential and its subsequent funding.

Oi: 10.26118/2782-4586.2023.78.24.005 История развития рынка венчурных инвестиций в Китае

Цель исследования: провести анализ истории развития рынка венчурных инвестиций в Китае и рассмотреть аспекты его формирования. Методология: в статье применялись различные методы исследования: статистическое наблюдение, метод анализа и синтеза, системный подход, методы группировки и сравнений, метод сбора фактов и другие. Результаты: проведен анализ истории развития рынка венчурных инвестиций и было получено представление об основных аспектах его формирование. Выводы: современная венчурная экосистема Китая стремительно развивается благодаря активной деятельности основных венчурных фондов. Синергия между венчурными фондами и технологическими гигантами Китая стимулирует появление новых инноваций и технологий в различных отраслях, включая искусственный интеллект, финансовые технологии, электронную коммерцию и многое другое. Благодаря их действиям регион привлекает инвестиции и талантливых предпринимателей из разных стран, что способствует его экономическому росту и укреплению позиции Китая на мировой арене.