Venture Investment Research Articles

Методичний підхід до оцінювання та відбору венчурних проєктів

The article examines and analyzes methodological approaches to the evaluation and selection of venture projects, found that in a dynamic environment, venture funds choose strategies to attract and prepare agreements that correspond to their experience and market position. The main stages of selection of venture projects have been formulated, which allows to formalize the process of selection of venture projects and make it as transparent, clear and simple as possible. The criterion base of indicators of evaluation and selection of venture projects has been investigated and systematized, which allows to formalize the process of their evaluation and making rational management decisions. Attracting and preparing agreements is one of the most important aspects of venture activity, which requires high competence, skills and abilities. Analysis of the scientific literature made it possible to identify different approaches to the evaluation and selection of venture projects. For evaluation and selection of venture projects, first of all, qualitatively prepared business plans are studied. In this case, applications for investment without a business plan are usually not considered by the funds at all. In such conditions, investors are helped by knowledge in the relevant sectors of the economy and understanding of the prospects for their development, this is equated with a preliminary discussion of the problem with colleagues or at meetings of fund managers, where a deeper assessment of business value. The main principles of assessing the effectiveness of investment in venture investment are: taking into account the specifics of the investment sector in order to calculate the payback period of investments and the level of their profitability, which is as close as possible to real; in the presence of a base of comparison of application of benchmarking; optimization of fund management costs; taking into account all financial flows of the project; comparison of the cost of borrowed capital and return on investment; reasonable distribution of financial resources between venture projects taking into account the criterion of their effectiveness, etc. the purpose of the examination of an innovative venture project is to assess the scientific and technical level of the project, the possibilities of its implementation and effectiveness, the consequences of its implementation. Based on the results of the study, decisions are made on the feasibility and volume of investment, which determines the basic principles of the examination, namely: the system of organization of expert work and the unity of its regulatory and methodological support; independence and legal protection of participants in the expert process, their competence and interest in obtaining objective results; scientific and economic substantiation of expert assessments, their orientation to the world level of development of science and technology, norms and rules of technogenic and ecological safety, requirements of standards and international agreements; objectivity of the received decisions according to results of examination. The main criteria for selecting a venture project are a well-prepared business plan, scientific and technical level of the project, its feasibility and effectiveness, and important indicators for evaluating the effectiveness of a venture project are indicators of internal rate of return, modified internal rate of return, net present value, payback period, discounted payback period, profitability of sales, the average rate of return.

Replacing Management or Not: Contract Renegotiation to Prevent Double Moral Hazards of Venture Capital Investments

During the venture capital development, replacing the management work team or keeping up the status quo is a key strategy choice for venture capitalist and venture entrepreneur about the long-term development of enterprise and the control right transferring. In fact, the contract designing focuses on the distribution of cash flow to encourage both efforts in order to avoid double moral hazard, and the strategy behavior has similar effects according to the developing condition of venture enterprise. In this paper, we consider both contract design and strategic behavior, regarding this strategic behavior choice as a motivator and combining strategic behavior with financial instrument options. The main innovation is to redesign and optimize the contract based on dynamic perspective, which will analyze initial contract designed to motivate both sides’ effort if a venture enterprise is in good state, and then renegotiate whether to replace the management work team or keep up the status quo according to the venture enterprise’s development state in the process of venture investment cooperation. The paper also puts forward some conclusions: joint effort of both sides can be motivated through strategic behavior choice and then lead to increasing the overall value of the venture enterprise; after the venture enterprise has gained private benefits in the early stage, the venture capitalist needs to make appropriate assignments and demisability in benefits to remotivate the venture enterprise’s efforts, aiming to further balance venture enterprise’s private benefits and the earnings redistributed by venture capitalist.

Joint venture investments: An analysis of the level of compliance with the disclosure requirements of IFRS 12

AbstractThis study provides empirical evidence on changes in entities’ reporting of interests in joint ventures from proportionate consolidation to the equity method following adoption of IFRS 11 and their application of the corresponding IFRS 12 disclosure requirements. The sample includes 551 firms from 26 countries affected by the adoption of IFRS 11 (1,858 financial statements). The findings indicate that many firms are not fully complying with IFRS 12 disclosure requirements and that firm‐level characteristics (e.g., size, leverage, and ownership concentration) contribute more to explaining the level of (non)compliance, when compared to country‐level variables (e.g., legal system and emerging versus developed countries). We also find that the level of materiality of joint ventures is positively associated with the level of compliance with IFRS 12 disclosure requirements. Our results contribute to the literature on the determinants of compliance with IFRS Standards disclosure requirements and bring important insights for the post‐implementation review of IFRS 11 and IFRS 12 occurring between 2020 and 2022.

VC investors\u2019 venture screening: the role of the decision maker\u2019s education and experience

We assess whether and how VC investors’ education and experience influence their screening decisions of potential investee candidates. Empirically, we perform an experimental choice-based-conjoint (CBC) analysis with 564 individual VC investors. Our results highlight that the level and field of education, as well as the decision maker’s investment and entrepreneurial experience, moderate the relative importance of different screening criteria. More specifically, we find that international scalability seems to become more important for decision makers with higher education and those with entrepreneurial experience. Whereas decision makers with a background in natural science focus on the value-added of the product or service, engineers seem to value a break even profitability and focus less on the management team. Investment experience, on the other hand, leads to a stronger focus on the management team. Our study contributes to the literature investigating the influence of human capital characteristics of the decision maker in venture financing. Practical implications exist for entrepreneurial ventures seeking financing and for risk capital investors making investments in such ventures.

The Efficiency of the Venture Investment Process

Since the venture business is of particular importance in the processes of creating an efficient and competitive economy, the article is devoted to the assessment of the effectiveness of the venture investment process. The authors studied the theoretical prerequisites for assessing the effectiveness of the venture investment process; namely, they identified the features of venture investment, the state of venture investment in Ukraine, considered the leading performance indicators and analyzed the characteristics of evaluating the effectiveness of venture capital enterprises. This made it possible to propose an algorithm for assessing the effectiveness of the venture investment process, consisting of 4 stages.

The value of big data for analyzing growth dynamics of technology-based new ventures

This study demonstrates that web-search traffic information, in particular, Google Trends data, is a credible novel source of high-quality and easy-to-access data for analyzing technology-based new ventures (TBNVs) growth trajectories. Utilizing the diverse sample of 241 US-based TBNVs, we comparatively analyze the relationship between companies’ evolution curves represented by search activity on the one hand and by valuations achieved through rounds of venture investments on another. The results suggest that TBNV's growth dynamics are positively and strongly correlated with its web search traffic across the sample. This correlation is more robust when a company is a) more successful (in terms of valuation achieved) – especially if it is a “unicorn”; b) consumer-oriented (i.e., b2c); and 3) develops products in the form of a digital platform. Further analysis based on fuzzy-set Qualitative Comparative Analysis (fsQCA) shows that for the most successful companies (“unicorns”) and consumer-oriented digital platforms (i.e., b2c digital platform companies) proposed approach may be extremely reliable, while for other high-growth TBNVs it is useful for analyzing their growth dynamics, albeit to a more limited degree. The proposed methodological approach opens a wide range of possibilities for analyzing, researching and predicting the growth of recently formed growth-oriented companies, in practice and academia.

ВЕНЧУРНОЕ ФИНАНСИРОВАНИЕ КАК ФАКТОР ИННОВАЦИОННОГО РАЗВИТИЯ

The paper justifies the necessity to improve the mechanisms of venture capital funding in Kazakhstan for sustainable and effective development of the country. The role of venture capital funding in the innovative development of the countries is investigated on the base of study of the experience of such countries as USA, Canada, Europe, India, and China. The recent research works related to the venture capital funding in different aspects are reviewed. The innovative activity and venture investments in the Republic of Kazakhstan were analyzed. The paper investigates the features of venture capital funding in Kazakhstan. The investigation results show that Kazakhstan system of venture investment is at its initial stage of development, and there are no tangible results of venture field development yet. The conducted research allowed revealing the factors limiting the development of venture investment in Kazakhstan, these are: poor systematic monitoring of funds efficiency invested by the national institutes; lack of effective strategies of venture capital funding; low innovative activity and intensity of venture appearance; uncertainty and gaps in the legislative base related to venture financing; absence of tax concessions and preferences not tied to FEZ or technological parks; absence of strong institutional venture investors; low capacity of securities market and scarcity of its instruments. The work suggests a set of measures directed on activation of venture financing. The implementation of the suggested measures assumes the increased control over the effectiveness of quasi-public structures investments and venture incomes, and creation of conditions for venture capital funding development. The research results can be a cut-off point for further investigations in the field of venture capital funding related to the innovative development of the country.

Big Data Reveals Corporate Development Strategy: Innovation-Oriented or Economy-Oriented?

In the context of a new round of global scientific and technological revolution and industrial transformation, new enterprises with technological advantages and market prospects are the main force leading cutting-edge technology and disruptive technology. However, there are target differences and governance conflicts between venture investors and new enterprises, which are mainly reflected in whether to give priority to R&D and innovation strategies with high risk, long cycle and large investment. Then, is the enterprise development innovation-driven or still based on the past economic-orientated? Based on Python and STATa software, this paper conducts big data analysis on 2,756,910 samples of Chinese enterprises, and finds that the innovation-driven strategy of enterprises is still at the strategic level, and the tactical level is still dominated by economic scale.

Enunciating the Effect of the Doctrine of Sovereign Immunity of States on International Arbitration

In the 21st Century States continue to be one of the main players in international business transactions. The onerous responsibility of states to provide goods and services to their citizens means that, they are by default involved in enormous commercial transactions and investment ventures. In several of these business transactions involving states for example; states and states, states and organizations, states and private individuals/companies, states overtime have adopted international arbitration as their preferred mode of dispute resolution. This is manifested especially in investment agreements and international commercial transactions involving states. However, under public international law (international personality of states) states enjoy sovereign immunity as international legal persons. Sovereign immunity is a legal doctrine by which the sovereign or the state cannot, commit a legal wrong and is immune from civil suit or criminal prosecution. This has raised the concern as to the extent to which a State involved in international arbitration can invoke the doctrine of sovereign immunity and its impact on international arbitration. Inquisitively this paper asks; Is the doctrine of sovereign immunity a threat to international arbitration? In answering these questions, this paper interrogates how various International Conventions that offer a legal framework for international arbitration have addressed these seminal issues. For example; The Convention on the Settlement of Investment Disputes between States and Nationals that was created to offer a mechanism for resolving investor state disputes.

К вопросу о необходимости исследования правового статуса реципиентов венчурных инвестиций в целях создания эффективного механизма охраны их прав и законных интересов с учетом наличия «риска» не только на стороне инвестора, но и на стороне реципиента

The article deals with issues related to the implementation of venture investments, special emphasis is placed on the need for increased attention to the study of the status of investment recipients (“startups”) in order to create an effective mechanism for protecting their rights and legitimate interests at all stages of investment, and the importance of the initial (“seed”) stage is additionally emphasized.

Modeling of state priorities of management in the conditions of globalization: Financial, technical-technological and resource aspects

Purpose of the research. The purpose of the study is to explore the financial, technical, technological and resource aspects of modelling state management priorities in the context of globalization. Methodology. The following special methods of scientific cognition were used in the research process: historical-logical method; method of systematization, classification and theoretical generalization; method of institutional analysis; method of system analysis; method of logical analysis and synthesis; method of graphic analysis. Results. It is determined that in the process of formation of state priorities of business development it is necessary to take into account scenario foresights of innovative economy and on this basis to form own strategy of definition of state priorities. The stages of definition of the state priorities of business development in innovative economy according to the scenario “New innovative course” are offered. It is specified that the effectiveness of the implementation of the proposed stages is directly dependent on the intellectual level of government officials, their administrative experience in the direction of strategy. This update identifies the need to reform the labour market and the infrastructure elements represented in it. The priority of state regulation of the infrastructure of business development and the need to create a critical mass of intellectual human resources in the labour market are determined. Practical meaning. According to the presented research, the developed format of horizontal and vertical relations between participants of the institutional system - researchers, innovative entrepreneurs, venture investors and institutes of support of innovative entrepreneurship is of practical importance, which is a key and necessary condition for creating a successful innovation system. Prospects for further research. Given that the main supplier of intellectual potential for entrepreneurship is the labour market, emphasis is placed on the need to take it into account when forming a mechanism of state support for innovative development of entrepreneurship. The directions of business infrastructure improvement necessary for realization of neo-innovative formation methodology of the state priorities of business development at the national level are offered.

China’s belt and road initiative: The need for livelihood-inclusive stories

The Belt and Road Initiative (BRI) is one of the most ambitious global investment ventures in modern times, with the stated ambition to generate inclusive development processes through improved connectivity. Recent literature increasingly interprets the BRI as uneven, complex and dynamic, and there is growing focus on its environmental consequences. However, especially given the official narrative of inclusive development, surprisingly little attention has so far been paid to the livelihood politics produced where the BRI is implemented. This short paper critically reviews recent BRI literature on southern and eastern Asia. The main argument is that the current focus on economic and political dimensions of the BRI at national and international scales has left out an understanding of local issues. In conversation with recent calls for more grounded political understandings of the BRI, as well as attentiveness to its environmental consequences, we conclude by outlining some of the benefits of adding detailed livelihood analyses to the existing body of research on the BRI.

The Short-Run Effects of the General Data Protection Regulation on Technology Venture Investment

Jia et al. study the effects of the General Data Protection Regulation on technology venture investment in the European Union.

Which Cat to Bell? Investment Duration, Exit Type, and Returns in Venture Investments

India is one of the fastest-growing markets for venture capital (VC) investments. In this article, the authors use data from 1,190 VC investments and exits in India from 2000 to 2017 to analyze investment duration, exit type, returns, and the correlation between them. Their results show that (i) investment duration in India was 4.55 years; (ii) M&amp;A was the most common route of exit for VC investors; and (iii) the mean return (IRR) to investors was 13.25%. The investment duration is the time interval between investment and exit. The more investors in a venture, the lower the investment duration. Exit type is also correlated with returns. Although average returns are higher when the exit is through public markets, it is more consistent when the exit is through a buyback or M&amp;A. Returns are higher when the quantum of funding and funding rounds are optimal beyond which both hurt returns. Start-ups with four to six investors generated the highest returns. <b>TOPICS:</b>Real assets/alternative investments/private equity, emerging markets, performance measurement <b>Key Findings</b> ▪ The investment duration is the time interval between investment and exit. The more investors in a venture, the lower the investment duration. ▪ There is a dependence between the sector of the start-up and exit type. Similarly, there is a relationship between exit type and returns. Although average returns are higher when the exit is through public markets, it is more consistent when the exit is through a buyback or an M&amp;A. ▪ Returns are higher when the quantum of funding and the number of funding rounds are optimal, beyond which both negatively impact returns. Start-ups with four to six investors generated the highest returns.

Venture investment in innovative activity: theoretical aspect

Venture investment in innovative activity: theoretical aspect

SCENARIOS OF THE INVESTOR’S EXIT FROM VENTURE INVESTMENTS

The subject of research is contractual relationships between the investor and the founders of a young company, which predetermine exit scenarios for the investor at different stages of the company's development. To identify the main scenarios of the investor's exit from venture capital investments, the author uses research methods such as synthesis and comparative analysis. Analysis of Russian and foreign scientific literature has revealed that the main focus is on the exit of a venture investor from a business, and insufficient attention is paid to the exit of a business angel. The article considers additional contract terms that are not widespread in Russia, but are used in practice in foreign countries, which regulate the exit of an investor from a business, namely "drag-along", "tag along" and "demand right". The advantages and disadvantages of the main scenarios of the investor's exit from a business for both sides of investment relations are determined. Based on the results of considering the main scenarios of investor’s exit from a business and the key risks characterizing them, the instrument of internal hedging against the risk of a radical change in the company's development strategy due to the change of investor has been determined - multi-voting shares. Founders and investors can use the results obtained in the study at the early stages of company's development.

An Explainatory Study on Cooperative Investment Risk of Joint Venture Companies from an Economics of Organization Perspective

Background: Joint investment has increasingly become a popular investment method for venture capitalists. From the two traditional perspectives of investors and start-ups, research on Joint Venture Capital in the past 40 years has achieved rich results. Most recent literature is based on research from the perspective of organisational economics, which further advances the vertical development of research on Joint Venture Capital. Objective: The objective of this paper is to review research topics and core literature on Joint Venture Capital from the perspective of organisational economics, and through introducing the model of venture capitalists' ‘bounded rationality’ and evolutionary game in the joint investment risk analysis. This paper distinguishes the influence of the game model on the formation of joint investment. Finally, it reaches a conclusion and suggests a direction for future research. Methods: This paper finds and reviews literature on joint venture capital and dynamic game model of joint investment risk that is collated to reduce the actual risk assumed by each investor. Additionally, the paper summarises research topics and progress from the perspective of organisational economics to identify possible research directions for the future. Results: Based on the evolutionary game method for analysis of the model of joint investment, the following conclusion is drawn: the greater the heterogeneity of the participating entities, the smaller the unit conflict cost benefit and the greater the probability of successful joint venture investment. The joint investment operation mechanism will also be maintained on a long-term and stable manner. Conclusion: From the perspective of organisational economics, the latest research on Joint Venture Capital has extensively absorbed new research results of relevant disciplines. Joint Venture Capital activities can be understood from a broader perspective and with new insights, which reflect complex and dynamic interaction and correlative dependence on network members. To establish a more successful joint investment model, the paper introduces a relatively novel evolutionary game method for analysis of the joint investment model.

Islamic Banking, A Potential Banking System for India

Islamic banking is one of the fastest developing banking systems in the financial sector, with vast opportunities worldwide. Islamic banking operates by focussing on complete transparency, ethical investment avenues, co-operative businesses, risk sharing that attract not only the followers of Islam but people from other faiths also. Considering the growth Internationally–Islamic banking has become one of the fastest-growing segments in the International markets as well as Capital markets. With around 195 million Muslims approximately, India’s Muslim population is about the world’s third-largest and the world’s largest Muslim-minority population. India is home to 10.3% of the world’s Muslim population. Islamic banking system operates strictly by the Shariah laws which prohibit collection or payment of Interest, known as “Riba”. The Islamic banking system also prohibits investments in businesses or ventures that are considered Unlawful or Haraam. Risk bearing is one of the most basic principles based on which the Islamic banking system works, which relates to trading rather than risk transfer as in the case of conventional banking. The research papers aim at explaining the services of Islamic banking and various principles of Islamic banking. The research also intends to put forward the benefits and drawbacks of Islamic banking in the Indian context.

The performance of venture capital investments: failure risk, valuation uncertainty & venture characteristics

The venture capital industry relies extensively on convertible contracts that allow VCs to convert their investments into an equity stake or a fixed debt position at a future date. We study convertible venture investments exposed to failure risk and valuation uncertainty using a double-hazard framework in which venture capitalists maximize the expected utility of their return from the convertible contract, the equity division’s determination takes into account the noisy valuation relation of venture profits to venture value, and entrepreneurs search for the best funding deal. These aspects of the model lead to new insights on how important venture characteristics affect key venture finance outcomes and the return-structure of the venture capital market. Model results show analytically that the expected return of convertible investments increases with growth prospects, funding size, initial value and VC productivity, but declines with failure risk, venture horizon and entrepreneur’s productivity. The model and numerical study further show that VCs with higher funding capacity will prefer to fund at later stages, as their expected return increases with investment size and competitive searching leads to an equilibrium in which VCs with lower productivities can coexist profitably as their expected return rises.

Estimation of the prospects of using agrobiotechnologies to increase yield and preservation of soils

The article substantiates the possibility of creating agrobiocenoses with strategically important crops for the formation of a nutritional balance in the diet of the population of the Russian Federation without the use of chemically synthesized agrochemicals, in which the variety of the main elements of biologic technologies of cultivation of agricultural plants plays a key role. Progressive analysis of demand from the agro-industrial complex, indicators of the development of the agrobiotechnology market, consumer trends, and venture investments in biologic technologies allow us to conclude that the development and proposed approaches are promising, allowing to obtain high yields of agricultural crops while maintaining and increasing soil fertility, improving the phytosanitary state of fields.