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Using a unique dataset, we examine financial performance, arid venture capital involvement in 167 MBOs exiting through IPOs (MBO-IPOs) on the London Stock Exchange, during the period 1964 -1997. VC backed MBOs seem to be more underpriced than MBOs without venture capital backing, based on average value-weighted returns. MBOs backed by highly reputable VCs tend to be older companies, and exit earlier than MBOs backed by less reputable VCs. The results contradict 'certification' and 'grandstanding' hypotheses supported by US data (Meggirison arid Weiss, 1991; arid Gompers, 1996, respectively). We found no evidence of either significant underperformance, or that VC backed MBOs perform better than their non-VC backed counterparts in the long run. However, MBOs backed by highly reputable venture capital firms seem to be better long-term investments as compared to those backed by less prestigious venture capitalist firms. The results remain robust after using different methods to measure performance, and after controlling for sample selectivity bias. © Blackwell Publishing Ltd. 2005.

This paper presents a new explanation for the prevalence of convertible bond in venture capital finance. By modeling two-sided asymmetric information between entrepreneurs and venture capitalists, we prove that convertible bond can implement the optimal contract. The optimal conversion ratio increases when it's more difficult to attract a venture capitalist, and it also increases with the extent of adverse selection in the venture capitalist market. Our model also predicts that the optimal conversion ratio is negatively correlated with the competition in VC market and the level of VC's human capital.

This report elucidates the role of financial innovation in the off-grid solar sector and provides a roadmap for practitioners, financiers, and entrepreneurs navigating capital raises for companies active in the sector. It examines a full range of established and frontier financing options. It illustrates that some technology-enabled financial innovations, such as peer-to-peer business lending, are already playing an important role in the sector. It was prepared by the World Bank Group and the Cambridge Centre for Alternative Finance, the University of Cambridge Judge Business School, with support from ESMAP.

This second of a series of seven papers co-authored by M. Nicolas J. Firzli and David Weeks looks at the notions of private markets – PE, VC, private debt and infrastructure – and the "quest for yields" in a low interest rates environment, which where discussed at two recent global conferences organised by the G7 Pensions Summit (G7 P7) and the Singapore Economic Forum (SEF). ESG, impact investing, renewable energy and the notion of green growth are also discussed by the co-authors and other experts, including the Hon. Nick Sherry, fmr. AUS minister of Superannuation & Corporate Law, Nick Silver, chairman, Climate Bonds Initiative (CBI), Michael Dennis, Head, APAC, Alternatives & Cap. Markets, BlackRock, Dr Guan Seng Khoo, Singapore Management University (SMU) and Ingrid Edmund, Columbia Threadneedle Investments (CTI) The notion of financial long-term-ism is considered from the perspective of institutional asset owners, notably in the US, Britain and the European Union (EU), where "pension fund regulation and the structure of the industry [often] puts a premium on liquidity and causes short-termism, at the expense of long-term investment and patient capital.” Australia has seen much interest in privatisation of public functions/assets. This has increased opportunities for private investment in infrastructure. It has, however, raised political discussion about the correct pricing of “monopoly assets”, such as large regional airports and water utilities. The authors also look at some of the recent developments in Canada, China, India and various ASEAN jurisdictions, including Singapore and assess the role played by the city-state in a complex period: "the COVID crisis has accelerated the mutually reinforcing effects of the Age of Empowerment (ESG, Equity and Entrepreneurship/the Venture Capitalist Ethos), the Age of Geoeconomics (intensifying Sino-American coopetition) and Datafied World Economy (Digitalization, Ai, Cybernetics), and Singapore is positioned precisely at the crossroads where these three powerful currents meet.” Some of the financial and geo-economic aspects of the "Post Brexit" era are also analysed. The authors note that HM Government has invited four key maritime powers to join the 47th G7 summit held in Carbis Bay, Cornwall later in the year: Australia, South Korea, India and South Africa, thus "bringing the blue economy to the fore of the global policy agenda".

We examine the drivers of venture capital financing raised by eSports companies, using the CrunchBase database containing information on private and public companies receiving any type of venture capital funding worldwide. We find that companies located in Asia-Pacific and Americas attract more funding than in Europe. Venture capital funds are more likely to fund late stage and older companies, than innovative early stage and younger firms. We also observe that the founders’ previous experience plays a significant role in explaining the level of funding. Companies with at least one founder with previous eSport, managerial or start-up experience are more likely to get more funding by venture capital funds. Our research provides new evidence on how venture capital funding is allocated between late stage and early stage firms as well as between older and younger companies in the eSport-industry and in different markets.

The prolonged stagnation bank credit expansion, following the outbreak of recent economic and financial crises of 2008, and now the complex situation during the pandemic, has produced a significant impact on the availability of new and long-term sources of business financing, mainly related to mid and large-size companies, but also to start-ups. Currently, all such categories of businesses find difficulties in obtaining long-term financing from banks and this has major implications on financing their investments and projects in the pipeline. In a time when, paradoxically, bank credit is becoming increasingly complex and difficult and therefore, to score a significant influence on the economy and investment financing, and regardless of the existing liquidity abundance, establishing and developing Private Equity/Venture Capital Funds (PE/VC) can play an important contribution in this regard. Despite the fact that such type of institutional investor is currently lacking within the Albanian capital market, some basic legal, institutional and economic premises do exist within the Albanian financial landscape, and which could provide grounds for such an actor to play its role in providing an alternative source of long - term financing for Albanian businesses. Consequently, their existence could pave the way for revitalization of the idea and attempts to put into operation a functioning capital market in Albania, which is still rudimentary and non-active, and furthermore, helping in ensuring a sustainable long-term economic growth.

Using the data from Crunchbase, the leading platform for detailed information on early-stage firms, we document evidence of geographic dispersion and industry declustering of new startups over time. We show that this trend is associated with investment incentives of local angel investors. Specifically, angel investors are more likely to provide early-stage fundings to a firm dissimilar to its geographic peers. We find that this result is attributable to the different diversification preferences of angel investors. Angel investors make geographically concentrated investments with industry diversification, while venture capital investors make industry-concentrated investments with relatively greater geographic diversification.

Can “lean” teaching lead to “fat” learning? First, using a simple benefit maximization model, we characterize lean synchronization in teaching and learning as a distinctive pathway for maximizing aggregate students’ learning. Next, using a two-group post-test only quasi-experiment in an Entrepreneurial Finance class, we demonstrate how a lean synchronization in teaching and learning effort can be captured and evaluated. Our quasi-experiment provides new empirical evidence that lean-synchronization significantly improves aggregate students’ learning, with a non-positive change in the aggregate teaching and learning resources. We also show that improvements in aggregate students’ learning lead to higher aggregate students’ perceptions of multiple aspects of the delivery of a course. Overall, we argue that lean synchronization can enhance institutions’ general preparedness and resilience to unforeseen external shocks (e.g., the COVID-19 pandemic) and contribute to the proliferation of inclusive teaching and learning classrooms globally.

Venture capital (VC) financing, seeking high growth opportunities, could provide an effective way for a coincidence of wants between high economic growth objective of developing countries like Pakistan and the aim of VCs. I examine the case of Pakistan, an emerging market in South East Asia, where the youth – particularly budding entrepreneurs – lack access to capital. However, the quantum of foreign investment by itself may not be sufficient to attain high growth, high returns. Investment in human capital to develop an entrepreneurial agglomeration and ecosystem is a necessary factor, along with finding suitable sectors for investment, where comparative advantage exists.

We assess the impact of the 2012 JOBS Act equity crowdfunding legislation that allows U.S.non-accredited investors to invest in private small businesses through online portals. The goals of new regulation were to spur small business growth and democratize investment in private startups by increasing access to capital. We find that the evidence is mixed:on the one hand, crowdfunding seems to expand access to finance to small business by targeting firms that are not usually served by institutional investors like angel and venture capital. Furthermore, having a successful crowdfunding campaign has a causal positive effect on future firm performance relative to a failed campaign. On the other hand, the equity crowdfunding market faces severe adverse selection that limit the expansion of this new form of business financing. Moreover, relative to angel-backed firms, successfully crowdfunded firms are less likely to progress through the financing funnel and thus provide exit to investors.

This paper examines the impact of competition on the investment behavior and outcomes of venture capital (VC) firms with differing reputations. Following the introduction of investor tax credit programs that increase competition, reputable VCs decrease the number and size of their investments. The results are more pronounced in states with lower investment requirements and lower VC supply. Reputable VCs also reduce their syndicate size and shrink the time between financing rounds. They become less likely to partner with serial founders and their performance deteriorates. Our results suggest that increasing competition depresses returns for reputable VCs, hurting their incentive to invest.

Business Development Companies (“BDCs”) are a type of closed end investment company, created when Congress amended the Investment Company Act of 1940 in 1980. BDCs were first created to make it easier to invest in venture capital pools and private equity investments. Over the past decade, interest in BDCs has increased. BDCs provide funding to small and mid-sized businesses. Following the financial crisis, BDCs were able to provide loans to businesses that may not have been able to receive financing from more traditional sources. In 2009, the first non-traded public BDCs were issued, raising almost $100 million that year. The following year, sales more than tripled to $369 million. Non-traded BDCs hit their peak in 2014, raising $5.5 billion. In 2020, broker-dealers sold only $362.3 million of non-traded BDCs, the lowest volume since 2010. This article describes the regulations that govern BDCs: federal, state, and SRO. Next, the article examines recent enforcement actions concerning the sale of BDCs by broker-dealers. Finally, the article discusses concerns raised by the sale of non-traded BDCs to investors.

This amicus brief argues that New York’s Appellate Division should reverse the Supreme Court’s decision to deny recognition and enforcement of a Chinese judgment on the ground that China lacks impartial tribunals and procedures compatible with due process. The brief makes three main arguments. First, the reasoning of the decision below would end the recognition and enforcement of Chinese judgments in New York State because it indicates that Chinese courts can never produce judgments entitled to recognition. Because other states adopting the Uniform Acts have the same ground for non-recognition in their laws, the effect of the Supreme Court’s decision may extend beyond New York. Second, the reasoning of the decision below applies to countries other than China. Country Reports on 141 other countries express concerns about judicial independence or corruption similar to those on which the Supreme Court relied. Third, the decision below would likely end the recognition and enforcement of U.S. judgments in China. China has recognized U.S. judgments based on reciprocity, but such reciprocity will be difficult to maintain in the face of a decision condemning the Chinese judicial system as incapable of ever producing a judgment entitled to recognition.

In early round investments by VC syndicates, the VCs which compose the syndicate often have very different levels of experience. In later round VC syndicates, often no VC from the earlier round syndicate is present. We show that a theory of informational hold-up by the incumbent syndicate can relate and explain these two observations. Consistent with the theory, we find empirically that the heterogeneity in experience of VC syndicate partners is (i) negatively related to the extent to which outside VCs trust in the entrepreneur and (ii) positively related to the likelihood of syndicate switching in a later round.

This paper examines how venture capital (VC) investment and institutional factors affect the performance of VC-backed companies in China. We conduct empirical analysis using a sample of companies listed on China’s Growth Enterprise Market (GEM) from 2009 to 2015. Our results show that, compared to non-VC-backed companies, VC-backed companies have higher market value but underperform in terms of profitability. We also document evidence that while VC investment does not help companies mitigate the negative impact of institutional factors on profitability, it does convey beneficial effects that help companies moderate the negative impact of institutional factors on market value.

This paper explores the investment impact and performance of a unique group of angel investors, those featured on the television show, Shark Tank. We explore the relationship between their individual characteristics such as their experience, reputation, and network with the performance of their investments. Our findings are counter-intuitive in that we find that many characteristics do not appear to impact performance as measured by survival and website traffic. Furthermore, we found that the Sharks do not have the ability to select outperforming companies on average. However, we found the reputational impact of Shark Tank as a venue is significant.

This study investigates whether a private firm’s decision to go public affects the IPO decisions of its competitors. Using detailed data from the drug development industry, we identify a private firm’s direct competitors at a precise level through a novel approach using similarity in drug development projects based on disease targets. The analysis shows that a private firm is significantly more likely to go public after observing the recent IPO of a direct competitor, and this effect is distinct from “hot” market effects or other common shocks. Furthermore, our effects are centered on firms that operate in more competitive areas. We additionally explore peer effects in private firm funding propensities more broadly, such as through venture capital or being acquired, and find results consistent with a competitive channel.

We study whether private firm public financial statements influence the probability of raising venture capital (VC) and private equity (PE) financing. We hypothesize that private firms' public financial statements can help the VC/PE search process by providing a less costly screening tool to identify potential targets at the pre-investment stage. Using two complementary settings, we find that an increase in financial statement availability/transparency is associated with an increase in the probability of a private firm obtaining VC/PE financing. Our evidence highlights the importance of public financial statements in the decision of making of private investors in the early stages of a private firm's financing process.

This article studies future equity financing in a continuous-time principal-agent setup whereby career concerns generate moral hazard tension. Our framework admits precise closed-form expressions. The higher firm value leading up to conversion, the fewer equity investors attain and the less risk the entrepreneur takes. We implement the contract using a convertible note with a valuation cap, that if set too high, developing innovation becomes suboptimal. Lastly, we introduce the implied probability of success: a novel measure allowing for risk comparison across different innovative technologies. We demonstrate its use to empirically estimate investors' skill and correct selection bias in realized returns.

Are the agglomeration economies of technology hubs augmented by a localized market for start-ups – acquisitions, and IPOs? How does this affect the ability of places outside of those hubs to foster digital startups as a tool of local economic development? We study this with a particular focus on acquisitions by the seven largest American digital platforms – Amazon, Alphabet [Google], Apple, Microsoft, Facebook, Oracle and Adobe, which we call, collectively, Big Tech. We cover the years 2001-2020. We show that firms acquired by Big Tech are, disproportionately to the sectors in which they operate, concentrated in major tech clusters, and particularly in the Silicon Valley (San Francisco/San Jose). Foreign acquisitions by Big Tech also show a marked concentration in a few countries, and particular places in those countries. NASDAQ IPOs of firms in relevant sectors are similarly concentrated. Acquisition, or the less common alternative, IPO, is the second major phase of financing for a digital start up. The first phase is commonly associated with venture capital (VC), and location proximate to venture capital companies has often been seen as a motivation for locating in a tech cluster. We find, however, that neither VC funding, nor funding an investor located in the Silicon Valley, predicts either acquisition by Big Tech, or IPO. Funding by any of the VCs that helped launch the Big Tech firms, however, is strongly associated with Big Tech acquisition. This suggests an important role for social networks in both the first and second phases of financing, but not necessarily a geographical role in the first phase.We argue that the acquisition market – and its effects on both the major tech hubs and the left behind rest – depends crucially on the proprietary control of access to various digital network products. Regulation of these markets, particularly in the form of common carrier status and open standards, could achieve a considerable re-balancing.

PurposeOverseas work experiences have played a critical role in venture creation and success, yet the impact of overseas work experience on returnee entrepreneurs’ venture capital funding in the Chinese market remains understudied. This paper aims to explore the impact of returnee entrepreneurs’ overseas experiences on their opportunities of venture capital funding in China to help better understand the potential benefits that overseas work experiences bring to emerging markets.Design/methodology/approachThe authors have conducted a two-year inductive field study to explore the impact of overseas experiences on Chinese returnee entrepreneurs’ funding in the Chinese market with in-depth interviews with returnee capital seekers (or the venture founders) and capital providers.FindingsThe results show that returnee entrepreneurs are more likely to succeed in acquiring financial resources for their new ventures if they skillfully present their overseas work experiences and international networks to manage the impression constructed by capital providers.Originality/valueThis research sheds light on how returnee entrepreneurs use impression management in external resource acquisition. It is clear that overseas experience has been regarded a symbol of personal capability closely associated with advanced knowledge and valuable human and social capital in the Chinese context. Resource holders appreciate such an association. The authors suggest that returnee entrepreneurs concerned about how to effectively acquire external resources should reflect upon the ways of presenting themselves to potential investors and fostering a positive image that encourages investors to commit to their ventures.

We study the participation of nascent firms in open-source communities and its implications for attracting funding. To do so, we exploit unique data on 160,065 US startups linking information from Crunchbase to firms’ GitHub accounts. Estimating a within-startup model saturated with fixed effects, we show that startups accelerate their activities on the platform in the twelve months prior to raising their first financing round. The intensity of their involvement on GitHub declines in the twelve months after. Startups intensify those activities that rely on external technology sources above and beyond the technologies they themselves control. Exploiting a shock that reduced the relative cost of internal collaborations we provide evidence that startups' decision to integrate external sources of knowledge in their production function hinges on the relative cost vis-a-vis internal collaboration. Applying machine learning to classify GitHub projects, we further unveil that the most prevalent among these external activities are related to software development, data analytics, and integration. Our results indicate that VCs and renowned investors are the most responsive to these activities.

A special purpose acquisition company (SPAC) allows sponsors to directly access public capital markets to raise funds to conduct acquisitions. Traditionally, such sponsors would raise capital by first tapping private markets to initiate a venture capital (VC) or private equity (PE) fund. We present a model that lends itself to an evaluation of the traditional PE-to-IPO approach and SPAC financing. PE-to-IPO financing more efficiently separates high-quality from low-quality sponsors. SPAC financing more efficiently separates good acquisitions from bad acquisitions and therefore is the preferred mode of funding for firms subject to severe adverse selection. According to our model, the recent rise of intangible assets and technology companies can explain the increased use of SPAC financing.

This paper studies corporate venture capital (CVC) units of large US corporations to learn how they make decisions across several areas: internal organization of CVC units, relationships with parent companies, CVC unit objectives, investment process and approval, deal structure, relationship with portfolio companies, compensation, and composition of CVC teams. The study is conducted by interviewing senior team members of seventy-four CVC units, representing 78% of the active CVC units of companies in the S&P 500 index. CVC units are organized in significantly more diverse ways than institutional VC firms. Unlike institutional VC firms, most CVC units do not manage committed venture funds, but instead invest from the balance sheets of their parent companies. Investment committees, in which parent company executives play a pivotal role in approving individual decisions, are common. Many corporate venture capitalists (CVCs) believe executives at their parent companies do not understand the norms of the venture space. The demographic composition of senior team members at CVC units is very different than that of their counterparts at institutional VC firms. The results raise a number of issues about the economic role of CVC units in corporate innovation.

The article 'Entrepreneurial Incentives and the Role of Initial Coin Offerings' by Garratt and van Oordt revisits a classical principal-agent problem in corporate finance: How do financing choices of firms and the according firm ownership structure impact effort choices of the management and therefore firm value? Garratt and Oordt extend this classic discussion by analyzing initial coin offerings (ICOs) as a startup financing instrument in contrast to classic financing instruments such as debt, (entrepreneurial) equity and venture capital. Their paper shows, depending on the firm's characteristics, ICO financing can align the entrepreneur's incentives with those of his investors better or worse, in comparison to venture capital and debt financing. Therefore, the novel ICO financing instrument is a valuable alternative to credit and venture capital also from a social perspective. I find the efficiency comparison of financing choices for entrepreneurial incentives to be a very interesting and important contribution. In this discussion, I shed light on this topic from a different angle. Garratt and van Oordt base their analysis on the simplifying assumption that demand for the platform product realizes once and for all in t=1. This allows Garratt and van Oordt to abstract from token-exchange rate risk. Here, instead, I will allow platform demand to evolve stochastically across time. Moreover, unlike in Garratt and van Oordt, I analyze the general case where not necessarily all tokens are sold in the market at every point in time. Instead, there can exist token speculation where investors hold on to tokens for a certain period of time, effectively reducing the token supply, or additional tokens can be mined by the entrepreneur, which increases the token supply, even though the latter activity might constitute a breach of contract. By allowing the token supply and product demand to fluctuate across time, the token exchange rate becomes stochastic, causing exchange rate risk to the ICO investors, the entrepreneur, and platform retailers.

We assess the effect of the COVID-19 pandemic on venture capital (VC) investments. Using a dataset of 39,527 funding rounds that occurred before and during the pandemic in 130 coun-tries, we document a significant decline in VC investments. In line with our theoretical consid-erations, we show that this decline is more pronounced for investments characterized by higher uncertainty, namely investments in seed-stage ventures, in industries that are affected more heavily by the COVID-19 crisis, in international investments, and for non-syndicated invest-ments. The effects are partially moderated by investor prominence.

I characterize an optimal, incentive compatible, and renegotiation proof contract of venture capital (VC ) financing of a startup (that may be successful or not) whose rate of arrival of success is a function of the accumulated investment stock. The contract depends on the startup valuation, prior probability of success, and initial capital. Sufficient conditions for existence of such a contract are specified. The paper explains why the startup has to rely on different ways of financing in different stages of its life, and why VC financing is not feasible in early stages of development of the startup.

We provide novel evidence on voting practices used by the investment committees of prominent venture capital investors in the U.S. A substantial share of these VCs use a voting rule for seed and early stage investments where a single `champion' is sufficient for the entire partnership to make an investment, even if other members are not as favorable. However, the same VCs migrate to more conventional `majority' or `unanimous' voting rules for their later stage investments. We show theoretically that a `champions' model can emerge as the optimal voting rule when outcomes follow a sub-exponential distribution (resembling the investments of early stage VC), but also requires that partners have sufficiently common objectives to prevent strategic overchampioning for pet projects. More traditional voting rules are robust to overchampioning but are more likely to systematically miss the best early stage investments.

Leadership transition in private equity firms is an understudied field, despite the important, albeit controversial, role such firms play in developed economies. We analyzed 260 firms in an empirical study, supplemented by qualitative interviews with a small sample of highly experienced LPs and GP founders and leaders who have experienced such transitions first hand. Our research shows that private equity transitions manifest very differently from those in better studied public corporations. It appears that a) founders and leaders in GPs stay in their positions considerably longer than other sectors, b) are more likely to move on once they are outperforming, and c) if underperforming, their firms are more likely to see an uplift from a transition. In addition, d) transitions are idiosyncratic, internally driven processes with little accepted best practice or governance, e) these processes are frequently characterized by some frictions, and f) LPs have observed many sub-optimal processes and would prefer greater transparency.

This study investigates the differing role of enforcement on the formation of venture capital (VC) syndication networks. We conjecture that public enforcement, with strong investigative powers against any syndicate member, discourages the formation of denser syndication networks due to misconduct risk by a member. By contrast, private enforcement, with strong disclosure and liability standards, enables denser syndication networks, through clear liability rules, standardized securities contracts, and cost sharing amongst syndicate members. Our VC data from 31 countries show a negative impact of public enforcement on VC networks, and partially support the positive impact of private enforcement depending on cultural conditions.

This article investigated the impact of Igbo Apprenticeship System (IAS) on informal sector businesses in Nigeria. IAS is an innovative indigenous informal sector financing approach among the Igbo people in Nigeria. The study conceptualized the capital sharing model of IAS in comparison with venture capital and modern incubation system. Using a household survey data collected from about 400 informal sector businesses randomly selected from Onitsha (Anambra state) and Aba (Abia states) in South-Eastern Nigeria, the study examined the effect of capital sharing model on small firm growth in Nigeria. The estimation technique was based on ordinary least square (OLS) method while the Probit regression was used as a robust check on the OLS estimates. Findings revealed that the businesses of apprentice-graduates, i.e. those who underwent IAS grew significantly in any of the three measures of growth used; unlike the businesses whose owners did not undergo IAS. Therefore, this study provided an empirical validation to the use of the capital sharing model of the Igbo Apprenticeship System as an innovative informal sector financing model in Nigeria. The study thus recommends a policy framework that supports this innovative informal sector financing in Nigeria. Also, the venture capital and modern incubation system can be extended to incorporate features of the capital sharing model of IAS. This would however require strengthening the informal sector business environment.

This paper addresses the potentially negative implications of proposed antitrust legislation on the entrepreneurial ecosystem in general and particularly focuses on the Venture Capitalists (VCs) that fund it. First, it offers a review of how antitrust merger law currently works and how proposed legislative changes to antitrust may threaten the innovative VC-backed ecosystem that has made the United States the center of global innovation across many different industries. Accompanying this review are some empirical observations. Second, recognizing that understanding innovative entrepreneurial activity calls for a deep appreciation of those who back it, the paper provides an overview of the entrepreneurial ecosystem and the motivations of VCs. In so doing, it identifies the drivers of entrepreneurial innovation and explain why changes to merger law may threaten these models of facilitating innovative growth-orientated entrepreneurs. Lastly, the paper concludes that changes to merger law may have negative effects on the entire entrepreneurial ecosystem and hinder US innovation.

This paper seeks to investigate the existence and importance of collective intelligence to reduce information frictions by informing potential early-stage investors about venture quality. My context is an online platform where the community score projects, offering new insights into how the crowd affects subsequent venture success. I motivate my analysis using a statistical extraction model, which predicts that higher-scoring from the crowd signaling information about project quality, reducing information frictions to potential early-stage investors. To overcome the challenge of unobservables correlated with scoring, I leverage the quasi-random assignment of evaluators to project with different leniency, which leads to random variation in the overall score. Using this exogenous variation, I find no evidence that scoring from the crowd predicts subsequent venture success in the short and medium-run, but provides valuable information for entrepreneurs. In comparison, naive OLS estimates show positive correlations between the aggregate score and subsequent venture survival and employment, suggesting selection bias. Overall, my findings suggest that the crowd is unlikely to be an effective choice for revealing information about venture quality and reducing information frictions.

VC: An American History offers a compelling chronicle of the development of professional venture capital (VC) in the United States, from VC-like forebearers as diverse as 18th century cotton manufacturing and 19th century whaling up to the state of the modern VC market at the turn of the millennium. The book emphasizes America’s enduring advantage in venture capital as a consequence of these early developments and as a practical governance solution for investing in the long-tailed returns of risky new ventures. In this essay we discuss similar historical precedent and governance arrangements in the spice trading voyages of the 16th and 17th century Dutch Republic, calling into question the uniqueness of the early American VC ancestors. Moreover, far from being a distinguishing feature of early ventures, long-tailed returns exist even in public equities, suggesting that the VC governance structure is about more than the distribution of returns. We conclude that the reasons for American dominance of contemporary VC remain unclear. Picking up where the book leaves off, we summarize facts and trends in 21st century venture capital.

We review the growing literature on the relationship between venture capital booms and startup financing, focusing on three broad areas: First, we discuss the drivers of large inflows into the venture capital asset class, particularly in recent years -- which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of venture capital financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VCs choose to fund and terms at which they are funded, independent of investment opportunities -- thereby shaping the trajectory of innovation being conducted by startups. Third, an important insight from recent research is that booms in venture capital financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the US over the past forty years in just two broad areas – information and communication technologies (ICT) and biotechnology. We conclude by highlighting promising areas of further research.

The potential to exit companies through Initial Public Offerings (IPOs) is argued to be critical to the existence of an active venture capital (VC) market. However, this can be difficult to test due to endogeneity concerns. We use the suspension of China’s IPO market as an exogenous shock. We analyse the impact of IPO suspensions on VC investment, exit mechanisms and fundraising. We find that contemporaneous VC investment decreases. VCs are more likely to invest in high tech and less likely to invest in late stage and syndicated deals. Companies that received investment during an IPO suspension are less likely to be exited and take longer to exit. IPO suspensions significantly increase the likelihood of an exit via takeover and international IPO markets. Further, both the number of new funds raising capital and fund target amounts decrease. The results suggest that lack of access to public markets dampens VC activity.

This study documents a significant negative relationship between policy uncertainty and venture capital (VC) investment in startups across emerging venture capital markets (i.e., outside the United States). The adverse effect of policy uncertainty is exacerbated for younger and early-stage startups. By contrast, the effect is attenuated for startups that have headquarters in cities with a high concentration of global VC investment, in countries with more developed stock markets, or if the VC is led by a bank or a corporate entity. Using close national elections and term limits to alleviate endogeneity concerns, we find that the baseline results continue to hold. Furthermore, we also find that policy uncertainty reduces the amount of cross-border VC investment. Finally, this study provides evidence that uncertainty increases the number of financing rounds, decreases the fraction of investment amount during the first round, and reduces the likelihood of successful exit through acquisition.

We complement the literature on common ownership by presenting two new observations from entrepreneurial start-ups. First, given the increase in common ownership of start-ups by venture capital investors, inclusion of high-value start-ups in standard common ownership measures may actually increase aggregate measures of common ownership. Second, we suggest that even if public-firm common ownership leads to collusive inefficiency and higher prices in the short term, it may also create opportunities for entry of innovative high-growth start-ups. Consistent with this, we document that entrepreneurial activity and common ownership of start-ups tends to be higher in industries with higher common ownership among public firms.

The results of the research and facts listed in this work show how the entrepreneurship training workshop Empretec may benefit the performance of micro, small and medium sized enterprises in Brazil. Our work draws attention to the interaction between promoting entrepreneurship and activities of the financial industry, especially private equity funds and venture capital investors. Unlike other studies that focus on confirming that participation in entrepreneurship programs improves business performance and entrepreneurial activity, this work points out the reasons how and why Empretec contributes to bolster entrepreneurial mind-set and accomplishments and welfare in a society. The findings suggest that Empretec is particularly effective in strengthening awareness on behaviours, emphasizing the relevance of habits, and taking advantage of the effectiveness of active learning techniques. Such evidence arises from the analysis with qualitative and quantitative tools the data from a broad nationwide survey, together with statements from participants in Empretec workshops in Brazil since 1993. Amid systematic planning and monitoring, one detected challenge to improve is record-keeping. Entrepreneurs may then access accurate, timely, and relevant information on the current situation and on external factors affecting their business, which will eventually improve their strategic and operational decision-making and, hence, enhance business performance.

This paper reviews 133 of Mike Wright’s contributions to the management buy-out and entrepreneurial finance literature. The outline is chronological and subject-related, revealing the development of Professor Wright’s scholarly work over time and its variety. We begin with the emergence of buy-outs, a discussion of agency costs and corporate governance issues. We then move to internationalisation, boom and bust, Mike's acknowledgement of the arrival of active investors, emerging markets, deal structuring, syndication, new venture finance, financial and economic performance, and recent developments. We document the legacy of an abundant scholar and provide, thanks to his outstanding academic impact, guidance on the evolution of management buy-out and entrepreneurial finance research since its inception.

General partners (GP) are sometimes paid on a deal-by-deal basis and other times on a whole-portfolio basis. When is one method of payment better than the other? I show that when assets (projects or firms) are highly correlated or when GPs have low reputation, whole-portfolio contracting is superior to deal-by-deal contracting. In this case, by bundling payouts together, whole- portfolio contracting enhances incentives for GPs to exert e ort. Therefore, it is better suited to alleviate the moral hazard problem which is stronger than the adverse selection problem in the case of high correlation of assets or low reputation of GPs. In contrast, for low correlation of assets or high reputation of GPs, information asymmetry concerns dominate and deal-by- deal contracts become optimal, as they can efficiently weed out bad projects one by one. These results shed light on recent empirical findings on the relationship between investors and venture capitalists.

Venture capital (VC) syndication mainly occurs to compensate for a lack of resources, whether financial or otherwise. The current literature does not sufficiently explore the extent to which the motives differ for syndication between general partners (GPs) or between GPs and limited partners (LPs). This paper investigates this matter, using a qualitative research design and focusing explicitly on heterogenous GP-LP syndicates. We document substantial differences between GPs and LPs in terms of syndication motives and criteria. For example, GPs aim to maximize influence by pooling control rights, while LPs wish to play a more passive role. More broadly, we find that the investment context, particularly the target company’s business model, presents another factor for determining the most effective syndicate setup.

This paper investigates the effects of acquisitions by “big techs” on venture capital (VC) funding for start-up companies. Because of the strong association between VC investment and innovation, this approach also sheds light on the repercussions of big tech start-up acquisitions on innovation. We analyze observations on more than 32,000 venture capital deals in 173 different segments of the technology industry and nearly 400 tech start-up acquisitions made worldwide between 2010 and 2020 by Google, Facebook, Amazon, Apple, and Microsoft. Results obtained with fixed effects panel and differences-in-differences estimators reveal a positive, causal impact of big tech start-up acquisitions on venture capital activity. However, the findings suggest that the effects are transient and fade away after several quarters. These insights are relevant for the current policy discussions on limiting the ability of big tech companies to acquire start-ups.

This paper develops the first option pricing model of venture capital-backed companies and their security values that incorporates the dilutive future financing rounds prevalent in the industry. Applying our model to 19,000 companies raising 37,000 rounds shows that preferred contractual features make the most recently issued preferred shares worth on average 56% more than common shares. While future rounds have a negligible impact on most securities, they significantly impair the value of securities with high liquidation multiples or seniority. Counterintuitively, future “investor-friendly” rounds transfer value from current investors to founders and other common shareholders, significantly reducing the value of many preferred protections. Our model-implied valuations predict exit values, price changes, and outcomes. Modeled security values are consistent with prices reported by specialized intermediaries but suggest dramatic underreporting of common share values for tax purposes.

From 2004 to 2008, a bubble formed in clean technologies, such as solar, biofuels, batteries, and other renewable energy sources. In this paper, we analyze this clean-tech bubble through the lens of the Social Bubble Hypothesis, which holds that strong social interactions between enthusiastic supporters weave a network of reinforcing feedbacks that lead to widespread endorsement and extraordinary commitment by those involved. We present a detailed synthesis of the development of the clean-tech bubble, its history, and the role of venture capital and government funding in catalyzing it. In particular, we dissect the underlying narrative that was fueling the bubble. As bubbles can be essential in the process of accelerating the development of emerging technologies and diffusion of technological innovations, we present evidence that the clean-tech bubble constituted an example of an innovation-accelerating process.

The Silicon Valley Venture Capitalist Confidence IndexTM (Bloomberg ticker symbol: SVVCCI) is based on a recurring quarterly survey (since Q1 2004) of Silicon Valley/San Francisco Bay Area venture capitalists. The Index measures and reports the opinions of professional venture capitalists on their estimations of the high-growth venture entrepreneurial environment in the San Francisco Bay Area over the next 6 - 18 months. The Silicon Valley Venture Capitalist Confidence IndexTM for the second quarter of 2021, based on a June 2021 survey of 32 San Francisco Bay Area venture capitalists, registered 4.16 on a 5-point scale (with 5 indicating high confidence and 1 indicating low confidence). The Q2 2021 Index surged higher from the prior quarter’s reading of 3.82 and highlights the continuing strong recovery in the entrepreneurial economy since the pandemic low point confidence measure of 2.33 in the first quarter of 2020.

An entrepreneur usually chooses to receive seed funding for a new project from an angel investor (angel) or a venture capitalist (VC), a choice complicated by the implications of follow-on financing required at the next stage of the venture. The size of the follow-on round is typically much larger than the seed round and the first-stage investors, including the angel almost certainly, and the VC with a significant probability, do not extend follow-on financing. A project released by the original investor faces unfavorable valuation risk from a new financier at the second stage due to asymmetric information, and may even be denied funding and disappear into a ``funding hole." We show theoretically and empirically that the risks are asymmetric for initially angel-funded and initially VC-funded but otherwise identical projects. The risk is elevated with initially VC-backed projects because the original venture capitalist is presumed to decline further financing to all negative-NPV projects in her stable, along with some positive-NPV projects depending on her other opportunities, while an angel declines in all cases. Thus, a positive-NPV project released by a VC enters a diluted pool with more negative-NPV projects than a project released by an angel. On the other hand, the original venture capitalist adds value to all projects in the first period with her guidance and advice and projects that receive follow-on funding have no valuation risk due to asymmetric information. We show that an entrepreneur should choose seed funding from a VC when the follow-on rate of the VC is low or high, but select angel financing for intermediate follow-on rates. We examine seed fundings by the top US angel investors and venture capitalists from 2010-2015 and show that projects released by venture capitalists are less successful raising funds after release, and that follow-on rates by venture capitalists tend to be either high or low, supporting our theoretical findings. Our results are new to the existing literature and offer interesting implications, including that angel financing and VC financing are sometimes complementary, and not always substitutes as in conventional thinking. Angel financing may rescue an entrepreneur when VC financing leads to a funding hole.

Stock-market short-termism—stemming from rapid trading and activists looking for quick cash—is, a widespread view has it, hurting the American economy. Because stock markets will not support corporate long-term planning, the thinking goes, companies fail to invest enough, do not do enough research and development, and buy back so much of their stock that their coffers are depleted of cash for their future. This widespread view has induced proposals for remedy. One major proposal is for corporate “loyalty shares,” whereby stockholders who own their stock for longer periods would get more voting power than those who trade their stock quickly. That voting boost would, it’s hoped, support stability and sound long-term planning. Venture capitalists have already obtained the go-ahead from the Securities and Exchange Commission to found the “Long-Term Stock-Exchange,” as it is called—whose centerpiece has been loyalty shares and their concomitant voting boost for companies on the new exchange. In this article, we show why loyalty shares promoters’ thinking is overly optimistic. Facilitating insider control will be loyalty shares’ dominant motive and effect. Long-term thinking, planning, and investing will be weaker motivations and effects. Indeed, loyalty shares will at times undermine long-term planning at companies that use them. Loyalty share voting boosts would shift voting power in those U.S. public companies that adopt them, but they will not shift voting power toward shareholders most likely to promote the long-term. Instead, we should expect loyalty shares to empower conflicted corporate players who seek not more corporate focus on the long-term but to better protect themselves and their corporate positions. Controller-insider self-interest will dominate their motivation, not fighting short-termism, because insiders have self-interested reasons to lock in control and shut down outsiders, even if doing so fails to improve corporate time horizons. Policymakers with a bona fide long-term vision will find themselves frustrated by the outcome. Existing data from Europe, where loyalty shares are more extensively used thus far than in the United States, supports this structural analysis. Control motivations dominate; long-term motivations are pale or absent from the on-the-ground practice. Other reasons—as yet undiscussed as far as we can tell—may well justify opening corporate law to loyalty share programs. We introduce to the loyalty share analysis the ex ante value to the entrepreneur of retaining control—i.e., loyalty shares can help to motivate founders and thereby induce new entry, new start-ups, and new, original entrepreneurial activity. Weighing the value of continued control in fostering start-ups and original entrepreneurial activity against its later costs is not easy and it is not obvious which weighs more but, if there is economy-wide value to loyalty shares, that motivational value is where it is likely to reside. For short-termism, policymakers should be skeptical that promoting sound corporate long-termism will be a major result of facilitating loyalty shares in the American corporation.

The Indian financial ecosystem has strong growth potential. Total financial assets in India are only 1.58 times GDP, compared to the same metric being 3.14 and 6.73 for emerging and advanced economies respectively. Importantly, the total financial assets in India have grown at a faster rate of 15.32% for 2005-2019, while the growth rate for emerging and advanced economies has been 14.72% and 4.57% respectively. Fintech is expected to capture large amount of the potential value creation in the financial services sector, as evidenced by VC investments, which is considered an informed indicator of future growth. As of last year, Fintech companies received 39.7% of the VC funding in the financial sector. The amount of VC dollar into Fintech has grown at a rate of 35.6% between 2006-2020, twice the rate of growth in the BFSI sector. Notably, six out of 37 Indian Unicorns are Fintech firms. Within Fintech, Payment is the dominant vertical, receiving 59% of the cumulative 2006-2020 VC flow, and in the process contributing four Unicorns. The Insurance vertical, although modest in terms of total VC flow, has generated the remaining two Fintech Unicorns. Going forward, Fintech is expected to have more diversified growth due to recent regulatory initiatives and the enabling ecosystem for fintech businesses. The non-bank Lending vertical is the potential future star, already accounting for 43% of total Fintech funding rounds between 2015-2020. The creation of Account Aggregators and Open Credit Enhancement Networki, paves the way for strong future growth of the vertical.