Venture Capital Market Research Articles

Policy Recommendations to Enhance Vietnamese SMEs’ Ability to Access Venture Capital

Small and medium enterprises, which form a large part of the entity of the domestic private sector, play a vital role in economic growth, socio-economic development and the international integration process. However, SME groups in developing countries are under-developed and face a lot of difficulties in growth due to the absence of sufficient finance. Profoundly, venture capital is typically a suitable and sustainable external source of finance for Vietnamese SMEs with high growth potential. This study provides an overview of the venture capital market and its role in SMEs’ performance in Vietnam. This research also found that one of the reasons why foreign investment funds are not interested in the Vietnamese market is that they have not seen safe and sustainable opportunities for investment. This study not only contributes to the existing literature, because this topic in Vietnam has not received much attention and evidence is not available, but also gives policymakers, in developing countries in general and Vietnam in particular, some recommendations to determine areas of improvement in regulatory and policy aspects enabling increased responsible SME access to venture capital.

Business angels and early stage decision making criteria: empirical evidence from an emerging market

How do business angels assess a prospective entrepreneurial firm when they make an investment decision? This article examines a central question that informal venture capitalists have been struggling with for decades: What early stage decision making criteria do investors define and apply to reduce the volume of potential deals to a more manageable size? Based on semi-structured interviews with business angels in an emerging market, we show that investors are focused on the industry structure and product features, on the other side, our results also suggest a very strong support for the personality of the entrepreneur and management team. More specifically, entrepreneur trustworthiness is an essential element affecting an investor’s decision to close a deal. Business angels set requirements in terms of the entrepreneur’s equity stake in the start-up and monitoring tools to prevent the failure of investee firms. Our findings suggest that if there are warning signs that the project is in an existential crisis, most of the investors will reject their participation. We believe that our empirical results support both researchers and practitioners to establish a better understanding between the well-developed financial theories and the underresearched informal venture capital market in a Central and Eastern European country.

Early-stage investment in immuno oncology: riding the waves of hope & hype

Immuno-oncology has its fundamental origins in translating academic research through venture capital and public market investment. Pioneer company Medarex is a classicexample, which brought the first wave of key checkpoint inhibitor drugs to market. Since then, the Immuno-oncology field has grown at an exponential rate.

Empirical examination of relationship between venture capital financing and profitability of portfolio companies in Uganda

In recent times, venture capital (VC) financing has evolved as an alternative feasible funding model for young innovative companies. Existing studies focus on whether VC enhances profitability. While helpful, this body of work does not address a critical question: whether VC firms are more profitable than non-VC firms. The co-existence of both VC and non VC firms in Africa provides an opportunity to address this question. Accordingly, this paper sought to extend the understanding of the relationship between VC financing and the profitability of portfolio companies in Uganda, a rapidly growing VC market. We utilised a mixed methods approach, which involved quantitative data collected from 68 key VC stakeholders, and qualitative data collected from 16 semi-structured face-to-face interviews. The results confirm the superior performance of VC-financed enterprises when compared to non-VC-financed enterprises. The study makes a vital contribution by offering a diversified framework for enterprise success. The framework will assist VC firms in evaluating and customising funding programmes that can propel early-stage firms’ success in Uganda, and in similar emerging economies. Secondly, our results contribute to extant knowledge about recent developments in Uganda’s VC industry and how it influences the profitability trends of SMEs, also in similar emerging economies.

Venture capital: opportunities to use foreign investment experience in Russia

The foreign experience of venture investment in the context of the possibilities of its use in Russia is considered in the article. Separate interpretations of venture capital are shown; the role of venture capital funds in investment is indicated. The major stages of the global venture capital investment market development are briefly analysed. The major stages of the global venture capital investment market development are briefly analysed. Two organisational models of making risky investments used in world practice are allocated: limited partnership and evergreen funds. An assessment of the current state of the venture capital industry in the Russian Federation is given, key problems are identified. A number of measures to improve the state mechanism for supporting the venture capital market is proposed. Special attention is paid to legal regulation measures.

STATE SUPPORT FOR VENTURE BUSINESS IN THE WORLD

Purpose. The aim of the article is to reveal the essence of venture business, its role and significance. Identify the importance of the state as one of the interested participants in the venture capital market. Investigate and form the goals of the system of state financing of venture activities. Identify and disclose methods of state incentives for venture financing. Consider

Venture capital staging under economic policy uncertainty

Drawing upon a duration analysis framework, this study investigates how economic policy uncertainty (EPU) affects investment staging decisions and exit outcomes in China's venture capital (VC) market. Analyses from a sample of 61,661 venture capital investment decisions support the prediction of the real options theory that VCs delay to refinance their portfolio companies under high EPU. However, such delay effect is largely weakened in severe-VC-competition and high-technology industries, and in better economic conditions. In addition, governmental VCs with greater exposure to economic policy uncertainty are more sensitive to EPU. We further provide evidence that the investments made in times of high EPU have a lower likelihood of successful exit.

Do networks matter Social capital and public investors - the Austrian perspective

The underlying study was concerned with governmental venture capital which is grounded in the assumption of market failure and financing gaps for technological start-ups (Güllmann, 2000; Brettel, 2005). The aim of the study was to examine the venture capital market in Austria at the macro and the micro level. First hand collected survey data and secondary data sources were analysed by means of descriptive statistics in order to examine the effectiveness of the public involvement and the public investors' network, syndication rationales and mentoring procedures. The results revealed financing constraints in the later stages of the Austrian venture capital market again (Gassler et al., 2018; Friedl et al., 2019) and also showed that the public investors maintained comprehensive and diverse networks. Therefore, they should also play a pivotal role for the support of regional innovation ecosystems (Pierrakis and Saridakis, 2019) and not for the provision of financings alone.

Venture investments as a factor in the development of the Russian economy in a pandemic

The subject of the study is the role of venture investments in the development of the Russian economy during the pandemic. The object of the study is venture investments. The purpose of the study is to identify the role of venture investments in the development of the Russian economy in the context of a pandemic. The global economic crisis caused by the pandemic is forcing investors to look for new sources of financing for the long term. The methodology of the work uses logical generalization, factorial and comparative analysis, grouping method and systematic approach. To determine the role of venture investments in the development of the Russian economy in the conditions of the coronocrisis, an assessment of the current state of venture investment in the country was carried out. The results of the study are to substantiate the importance of the development of the Russian venture capital investment market and the formation of proposals to solve problems related to the insufficient effectiveness of the implementation of venture projects. Based on the research conducted within the framework of the article, it can be concluded that venture investments had a positive impact on the economy during the pandemic, as they became a source of financing for the development of various projects, including e-commerce, which allowed many business entities to continue their activities. It is advisable to create a Venture Fund of the EAEU on the basis of RVC – the state fund of Funds, which is an institute for the development of the Russian Federation, purposefully attracts Russian and foreign investors to priority segments of the Russian economy, promotes the development of new investment instruments of the national venture market.

Assessing the Efficiency of Venture Capital Functioning in the Transforming Economy in UAE and China by a Mathematical Model

This article examines the evolution of approaches to the content of venture capital based on the evolution of venture capital and venture capital investment, post-industrial society, institutional theory, and experience of forming the venture capital market in developing economies. Hypotheses of the functioning of venture capital in the transforming economy of the UAE and China are proposed and tested. An economical and mathematical model for assessing the efficiency of venture capital functioning has been developed. It was found that there is a particular relationship between the national characteristics of the country’s venture capital industry and the capital invested in innovative industries, as well as the production efficiency of these industries. Moreover, the attractiveness of venture capital investments somehow increases with investments in other sectors in both countries. Since the Chinese market evolved earlier than UAE, it has the most remarkable characteristics, including higher capital workforce ratios and higher exports of science and technology-intensive products. In addition, the Chinese market has a high level of development and focuses on a sustainable financing cycle than UAE.

Multi-Criteria Approach to Assessing the Investment Attractiveness of Innovative Projects

Realistic evaluation of the investment attractiveness of the financed project is the basis for the successful functioning of a venture investor. At the same time, investors often have to act in conditions of a severe lack of information, especially when it comes to projects at an early stage of the life cycle. In these cases, they use multi-criteria methods for assessing investment attractiveness, often also called scoring methods. The aim of this work is to develop a methodology for assessing the investment attractiveness of innovative projects at the early stages of the life cycle, both based on an analysis of theoretical approaches in the field of venture economics, and based on an analysis of existing business practices.We have proposed a method for assessing the investment attractiveness of a project based on dividing the criteria into three macro groups (market and entry strategy, team and product). At the same time, we used a concept that allows us to interpret the value of each of the assessed parameters (seven in each macro group) as a positive or negative signal given by the project to a potential investor.An important difference between the presented methodology and others described in the professional literature is the combination of the use of theoretical models with an in-depth analysis of the criteria used in practice by various players in the venture capital market (funds, business angels, etc.), which together form the methodological basis of the work. This combination of the use of sources of information on the criteria for evaluating projects determines the scientific novelty of the study. The practical significance lies in the possibility of applying the proposed methodology both by venture investors and other actors of the venture capital ecosystem for making specific financial decisions.

Venture capital and government involvement from a qualitative systematic literature review perspective

Abstract The financing of young start-up companies is hindered by market failures that prompt governments around the world to intervene at the venture capital market. The aim of this paper is to give a comprehensive overview on this research field based on sound systematic literature review methodology, which was never done before. We found three major themes: pure governmental venture capital involvement, governmental-private venture capital cooperation, and governmental involvement in the financing of pre-seed startups. The evaluation of the governmental efforts varies according to these themes and also the investigated geographic location. Generally, pure governmental venture capital is the most controversial theme, the government-private cooperation is mostly viewed in a positive light, while the authors almost unanimously praise the government’s efforts when financing pre-seed startups. We found that the success of governmental venture capital should not be judged based on the realized return of its investments, since profit maximalization is not its goal. The governments try to alleviate market failures at the venture capital market and transition financed startup companies to private financing. Thus, we advise researchers to use the number of this type of successful transitions as the success criteria of governmental investments.

Effective Venture Capital Market Development Concept

This paper presents the results of the study on the venture capital (VC) market development drivers in small countries with underdeveloped VC markets. Based on the literature content analysis, the authors developed a comprehensive list of factors influencing VC market status. The relevance of the factors in countries with small, underdeveloped VC markets was studied between experts involved in shaping Latvian VC market. The study revealed that all factors (in total 73) delivered from the literature influence the VC market in the countries such as Latvia. Sixty-three factors have an impact above moderate, and providing public funding for VC funds is only one of the factors. The results highlight the importance of the shift from the typical public support approach of providing VC managers with funding to the government involvement in also shaping other conditions necessary for VC market self-sufficiency development. Based on the study, the authors propose a conceptual model for further public support design. The model has three dimensions of meta factor groups (VC market participants, environment, embedded characteristics). It is necessary to evaluate and, if possible, provide public support in each of the meta-factors’ groups. The authors propose to use the model and the list of impactful factors as tools for further governmental support for VC.

The Venture Capital Market in a Pandemic: Realities of Time and Future Prospects

The subject of the research is the financial mechanism of the modern venture investment market under conditions of uncertainty and the requirements of accelerated innovative development. The study aims to analyze the impact of the pandemic on the sustainability of the institutional behavior of venture capital investment in the global and Russian markets. The authors apply such scientific methods as sampling, grouping, comparison, analogy, analysis, generalization, systemic-structural approach to assessing the development of the subject of research. The paper analyses the role of venture investment in the successful promotion of innovations using the example of the world’s leading companies in 2016–2021. Successful examples of venture investment are presented. The study investigates the impact of the pandemic and lockdown on the level of volatility, composition and dynamics of venture capital investments in 2020– 2021. The authors conclude that the pandemic has an impact on the sectoral redistribution of investments in favor of venture investments in medicine, biotechnology, the sector of information and communication technologies and solutions for business, education, healthcare, on market polarization (covid-negative, covid-positive, covid-neutral), on reducing the role of state funds and Russian accelerators, while increasing the interest and scale of participation of private institutions (foreign investors, business angels, syndicated angel investment), to increase of the volume of the Russian venture capital market by increasing the average ticket size despite the reduction in their number, to strengthen the practice reproduction of their own ecosystems by corporate institutions, to popularize venture capital investment deals in terms of mergers and acquisitions. Prospects for researching the venture capital market are associated with the constant attention to high-tech covid-positive projects, with the growth of transactions in the early stages, due to the increase in the number of professional communities, with the pinpoint development of specific tasks of an investor or corporation by accelerators, with venture investment of companies with the subsequent entry of the project into their own ecosystem, with the improvement of the state’s restrictive measures aimed at a clear institutionalization of professional activities and increasing the financial stability of participants in the investment and innovation markets, with the stimulation of mechanisms for regional innovative development to attract capital to high-risk projects in the regions.

Decoding VC exit returns: the Indian experience

PurposeThis paper aims to analyse the effect of the investment duration, the overall market condition and the industry to which the investee firm belongs on exit returns realised by venture capital (VC) firms invested in Indian market, using hierarchical regression models.Design/methodology/approachThe study examines the relationship that exist among the variables of interest by analysing all the 210 exits that happened in the Indian VC market over the period 2004–2017 by using analytical tools such as moving averages, hierarchical regressions and pooled ordinary least squares regression.FindingsExit return has an approximate U-shaped relationship with investment duration, and the turning point in the convex relationship happens around seven to eight years after investment. Returns are weakly related to the market condition, discarding the market timing hypothesis. Relationship patterns are found to be generally unvarying during the time period under study.Research limitations/implicationsThe results indicate VC funds in the Indian market tend to exit in a brief time span and gain substantial returns from the immediate exits beyond, which returns start dipping. This points to the illiquidity of the Indian VC market wherein the exits from “lemons” are quite tricky, which make them remain invested for longer durations and eroding the value substantially in the process. VC funds may make rational investment/exit decisions in the Indian market capitalising this knowledge.Originality/valueThis study empirically connects the value creating factors in a VC process to the established theories about the early stage investments and analyse the applicability and relevance of those theories in a market with high growth potential like India.

Exploring Impact Factors of Risk Contagion in Venture Capital Markets: A Complex Network Approach

Large-scale risk events in the venture capital (VC) market can easily lead to systemic risk in the financial market. This paper collects the comprehensive dataset of Chinese VC market from 1999 to 2020, and constructs the multi-layer networks of VC market. After that, a risk contagion model of venture capital market is designed considering both the capital loss transmission and social relations effect (investor herd behavior). By simulating various situations with different risk origins and scales, the speed of risk contagion and the total impacts on the overall stability of the market (network) are compared. We find that the herd behavior of the market will generally aggravate the consequences of risk contagion. Compared with unicorns, the failure of a leading VC firm can cause a wider range of risk contagion. The contagion consequences caused by the failure of random financing companies are more serious than those caused by random VC firms. Moreover, we identify that telecommunications services and information technology are high-risk industries in VC market. Based on the empirical results, this article provides policy implications for the market regulatory sectors to prevent VC market risks.

Problematic issues of determining the parties of relations of venture investment into innovation activities

Problem setting. Nowadays, given that public relations, as a rule, are ahead of the development of legislation that does not have time to adapt and modernize to new economic relationships, such relations do not receive adequate legal provision. Relations on venture investment into innovation activities are no exception. It is related both to the lack of a mechanism for legal provision, as well as scientific and practical best practice of its basic categories, one of which is the parties of the relevant legal relations. Analysis of recent researches and publications. The current state of the research on the selected issues indicates the imperfection of the current legislation and the lack of legal doctrine in the context of determining the parties of relations of venture investment into innovation activities. The doctrinal works of domestic and foreign experts, although contain analysis and reasoned conclusions about the participants of innovation relations, but do not provide unambiguous answer to the question on their parties. Target of research. The purpose of the research is to outline the parties of relations of venture investment into innovation activities. Article’s main body. The venture capital market is represented by two sectors: formal (venture funds) and informal (individual investors). Studying the essence and specifics of venture entrepreneurship is due to the fact that different countries have their own specifics of its implementation, and, accordingly, different parties of the relevant relations. It is mainly applied to organizational and legal forms of legal entities. At the same time, the implementation of corporate venture investments provides a significant number of new opportunities for a corporations, related to the reduction of costs for the purchase of new technologies, reduction of risks from the development of technologies, etc. The parties of venture investment into innovation activities can be represented by institutional investors, which should be understood as financial institutions that attract a large number of investors to combine them into a single money pool with the subsequent placement at the securities market and (or) investing into real estate. Thus, one can distinguish two groups of institutional investors depending on the subject matter of activity: universal investors (commercial banks, professional participants of securities market) and specialized investors (venture funds, incorporated investment funds, asset management companies, private pension funds). Conclusions and prospects for the development. There is currently no clear definition of organizational and legal forms of venture funds, because they are created as legal entities (corporate funds) or a set of assets (share funds) according to the current legislation. Venture funds should be created and should operate exclusively as legal entities – corporate investment funds. It provides certain guarantees to their individual investors, since the legislator establishes special conditions for the participation of individuals in venture funds. Organizational and legal forms of legal entities in the field of venture entrepreneurship should be a joint stock company or a limited liability company. The entities of venture investment into innovation activities are: 1) entities that bring the object of intellectual property to the status of an innovative product; and 2) entities that implement innovations and / or produce innovative products.

A new theoretical model of government backed venture capital funding

AbstractGovernment involvement in the venture capital (VC) market has become an important catalyst of the entrepreneurial ecosystem of young and innovative firms. There is an extensive literature describing the VC model, but the models of its government backed variants are not comprehensively discussed. The article focuses on the model of purely government backed venture capital (GVC) and hybrid venture capital (HGVC). The conclusion of this article is that, by the logic of their models, GVCs are destined to underperform than private VCs. Many articles see HGVCs as a step forward compared to GVCs, as they involve private participants. The novelty of the current article lies in bringing out the drawbacks deriving from the system of hybrid venture capital funding by creating a complex theoretical framework of the HGVC model. We show that due to the crowding in of private participants, this scheme creates a two-goal system where the private profit maximising interests conflict with the economic policy goals. The complex system of HGVC is exposed to increased moral hazard issues that might lead to higher distortions than GVC. The conclusions are especially relevant in the case of developing industries.

Government's impact on the venture capital market and small-medium enterprises' survival and growth in East Africa, evidence from Uganda

Government's impact on the venture capital market and small-medium enterprises' survival and growth in East Africa, evidence from Uganda

How cultural distance affects the formation of international strategic alliance – an explanation of the transaction costs theory

PurposeBased on the transaction cost theory, this paper aims to investigate the impact of cultural distance on international strategic alliance formation and its underlying mechanisms.Design/methodology/approachThis paper uses the investment of foreign firms in the Chinese Venture Capital market as an empirical background, Obtaining VC data from Zero2IPO Private Equity, CVsource Investment Database (2001–2015). This paper chooses the Logit regression method, according to Lind’s three-step method to test the inverted U-shaped relationship.FindingsThe empirical analysis of foreign venture capital firms invested in China revealed that there is an inverted U-shaped relationship between cultural distance and the possibility of international strategic alliances. This relationship is the result of two opposing mechanisms, which are the need and the feasibility of international strategic alliances. In addition, this study further examined the moderating effects of social embeddedness and social reputation, revealing the boundary effects on the complex relationship between cultural distance and possible international strategic alliance formation.Originality/valueThis study focuses on cultural difference, which is a key factor leading to a firm’s transaction costs. Based on the transaction cost theory, this paper investigates the impact of cultural distance on international strategic alliance formation and its underlying mechanisms.