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It is difficult to find an overview of the Indian venture capital industry because no systematic attempt has been made. To fill this critical gap, the author wants to offer an overall understanding of the Indian venture capital industry. The definition of venture capital is tricky, and the author proposes to use the term to refer only to start-up, early stage, and growth venture capital–stage funding. The term thus encompasses only traditional venture capital. To create an overall understanding or overview of Indian venture capital, the author will cover the following: • How has the venture capital industry in India developed in recent years and how will it continue to develop in the future? Which factors influence its development? • How does it compare to other private market investment asset classes in India and other developed venture markets such as the United States and Europe? • How are Indian venture funds structured in terms of organization? What are the sources for the funds invested in Indian venture capital? • What are the investment patterns of venture capital investment, in terms of, for example, venture stage, industry sectors, investment size, deal trends, and geography? • What exit mechanisms are used? Which exit mechanism has been more favorable and why? • What levels of return are achieved? TOPICS:Security analysis and valuation, statistical methods, emerging markets, risk management, private equity Key Findings • The Indian Venture Capital ecosystem has matured over the last 15 years, it is still a relatively young VC ecosystem as compared to developed markets like US & Europe, with around 4% share of global venture capital investments. This growth is noticeable and is in stark contrast to 2004, when venture investments were almost negligible in India. • While India received around 2.6% of global private-market investments from 2009–2017 period, private equity comprising of growth, buyout, turnaround & mezzanine funding have attracted majority (48%) of these investments. Share of venture capital was 16% of the overall private-market investments during this period. • Share of Series A Investments in value terms has fallen to 13% in 2016–2019 period from 40% in 2005–2010 period, with Series B & above gaining ground during these years. This reflects that VC ecosystem is maturing and promising start-ups are being funded throughout their growth journey. • Mergers & acquisitions (47%) followed by secondary sales (29%) have been the most preferred exit routes in terms of number of exits as of 2018. The ecosystem needs to create large no. of IPO exits across the value spectrum to build a more sustainable exit scenario. Further, unlike US, India doesn’t have a robust data repository on returns and other benchmarks of venture funds. Industry associations and regulatory bodies need to evolve more scientific ways to track returns data to create an accurate picture of the ecosystem.

Investing in creative or entrepreneurial ventures is part of the human condition and goes back as far as recorded history. The patronage of the Medici family of Florence supported the work of Leonardo de Vinci, Michelangelo, and Galileo. Queen Isabella was essentially a venture capitalist, supporting Christopher Columbus in his exploration of the New World. Many of the critical inflection points in modern history that had dramatic impacts on the human condition resulted from entrepreneurial initiatives supported by wealthy individuals and families. The history of modern venture capital was catalyzed by efforts at mobilizing capital for the many companies emerging after World War II, in part from both necessity and opportunity—the need to support the GIs returning from the war and the opportunity to commercialize the new technologies that resulted from the war effort. Commercial access and use of the Internet represents the latest catalyst for the acceleration in entrepreneurial activity around the world, with a corresponding growth in individuals investing in new ventures, as well as new funds. Unfortunately, the process of underwriting an entrepreneurial venture remains much like it was in the time of Leonardo de Vinci and Columbus: Energetic entrepreneurs convince a supporter (investor) of their vision and seek to share the rewards with the supporter, should there be any rewards to share. Investing was, and largely continues to be, transacted on a case-by-case basis. Ironically, there has been little innovation in the very funding mechanism of entrepreneurial finance. This has led to a critical shortage of early stage risk capital in various regions around the United States where historically blue-collar jobs have been disintermediated by technological advancements, but capital has not been available in these communities to support the new (digital) jobs that would replace those old jobs and provide hope for the next generation residing in those communities. This article will review the history of venture capital, explore the ineffectiveness of the historical model, and explore some of the innovative initiatives to improve the effectiveness of venture capital, thus funding more startups more efficiently and in more communities while delivering better risk-adjusted returns for investors. TOPIC:Private equity

An initial coin offering (ICO) is the procedure whereby ventures raise capital by selling tokens to investors. Compared with traditional financing methods, ICOs are new and less understood by both the industry and academia. For example, the literature is not clear about which factors determine the success rate or the amount raised in an ICO. Existing literature (Fisch 2019) shows that the signals of the private information of an ICO’s high quality determine the amount of funding in the ICO. This article is the first in the literature that provides evidence that investor sentiment and investor awareness are determinants of the amounts raised in an ICO. Moreover, it provides evidence confirming the signaling hypothesis. Specifically, ICOs with a pre-ICO and with a higher rating are more likely to raise more funds. This article is the only one in the literature that uses the entire market of 4,367 ICOs to confirm its findings. The results extend the understanding of the dynamics of an ICO to the behavioral field and enable investors and practitioners to understand the crucial determinants of both ICO success rates and the amounts raised. TOPICS:Private equity, currency, in markets, statistical methods

Thus, our confidence in the future will help determine the future—for better or worse. VCs, financiers of innovation and new venture creation, have a longer-term time horizon than most other investment executives, so their confidence about the future will tend to have impacts on the economy that affect all of us. Silicon Valley VCs, who are making investment decisions in the global heart of innovation in particular, have been shown to exert a strong influence on the evolution of business, so their outlook may be a significant factor in determining the future. To develop a quantitative index and qualitative commentary of trends and insights, Silicon Valley Venture Capitalist Confidence Index™ Research Reports have tracked VC confidence about the future entrepreneurial environment among about 30 VCs since Q1 2004. This article reviews Silicon Valley VC confidence over the six quarters from Q3 2017 to Q4 2018 in the context of concurrent economic indicators and finds that increasing VC sentiment tends to be based on improvements in exit opportunities and new technology disruptions that create new markets, while decreasing VC sentiment is linked to high valuations, rising costs of business, rising competition for talent, and uncertainty in the macro environment. VC confidence also appears to correspond to CEO confidence, perhaps due to the operational focus of VCs. Because VC confidence in the future entrepreneurial environment tends to impact their business decisions today (e.g., investments in new ventures), tracking VC confidence and the factors that drive it may provide unique and valuable insights to private and public market participants. TOPICS:Real assets/alternative investments/private equity

In today’s trade policy environment, it seems as if there is a new business risk every day. One day, it is sanctions on Chinese entities for doing business in North Korea; the next day, it is the activities of Russian oligarchs. Then companies are hit with four waves of increased import duties on steel, aluminum, and most raw materials and finished products from China. Even if firms are not importing on their own, US manufacturers are receiving “the letter” stating that they must pay additional fees on parts and other inputs. Sometimes the affected products simply involve imported packaging or aluminum can made in America from imported raw material. With so much change and uncertainty, how do investors identify and evaluate these and other trade-related risks that may impact their portfolio companies? TOPICS:Private equity, risk management, analysis of individual factors/risk premia, legal/regulatory/public policy

The determinants of private equity investments (particularly venture capital investments) have been studied extensively across developed economies, but this is not the case across emerging markets. This study primarily focuses on the determinants of private equity (inclusive of all sub-classes) among the BRICS countries. Six macroeconomic and market-related explanatory variables, including the Corruption Perception Index, are examined. Private equity funds raised across BRICS serve as the proxy for private equity investments. The study reveals that GDP growth and real interest rate are both statistically significant and positively related to private equity investments across the BRICS countries. Furthermore, market capitalization growth and corporate tax rates are statistically significant, and both are found to be negatively related to the dependent variable.

There is a growing recognition that the concentration of risk or venture capital in so few communities presents not only a challenge for the start-ups emerging from the many university entrepreneurial programs, incubators, and accelerators, but also is having a negative impact on the overall economy. Simultaneously, advancements in technology have undoubtedly improved the efficiency and profitability of many, if not most, industries. However, this has come at the expense of blue-collar jobs—and subsequently, the middle class. Moreover, with the concentration of venture capital in Silicon Valley, Boston, and now New York City, the companies located in those cities receive the lion’s share of funding and enjoy the associated economic benefits of innovation and technological advancement—vibrant and expanding employment opportunities and wealth creation. This double-whammy of job losses across much of the country and concentrated wealth creation in few communities has come to the attention of researchers, forward-thinking community and family foundations, and wealthy individuals concerned with broadening the economic opportunities that innovation and technological advancement provide. The necessity to mobilize capital on a localized or regionalized basis has been labeled Place-Based Impact Investing. This article will review the research and conclusions that have fueled the need for Place-Based Impact Investing, identify the current thought leaders, and describe some of the early efforts at mobilizing “legacy capital” into communities to support the growing but underfunded innovative companies. We also will explore some of the new methods, vehicles, and overlooked tax laws that can accelerate the mobilization of capital on a more geographic and meritocratic manner.

One of the articles in the Spring Edition of The Journal of Private Equity explores why positive risk-adjusted returns, namely alpha, has been limited to a select group of venture funds and investors. That article recommends possible causes and proffered solutions. This article explores in greater detail the (potential) answers to the chronic “negative alpha” typical of the venture asset class. The author also presents the most recent thinking on venture portfolio construction, and shared investment selection philosophies and practices from the public securities market (hint: picking stocks does not work). Included are insights from institutional investors that have heretofore avoided the venture asset class due to the chronic “negative alpha,” and how a new approach using Smart Beta filtering could attract more institutional capital earlier in the startup lifecycle. The interests and motivations of the modern Impact investor today are remarkably similar with the original roots, and could represent the next wave of capital flowing into early-stage entrepreneurial companies. Success may come with a lowering of the cost of capital for entrepreneurs seeking funding and the equity risk premium applied by investors, moving the efficient frontier on the asset class up and to the left.

In the venture asset class, positive risk-adjusted return (alpha) has historically been limited to a select group of firms and their investors. The randomness of these funds’ performance suggests the track records are of little value when allocating capital to venture funds. Why do the majority of funds consistently underperform? Will family offices find the traditional venture model sufficient as they seek both reasonable alpha and to have the impact they want? Is the traditional venture model equipped to deliver alpha on this expanding capital base? Is it time for the industry that purportedly funds innovation to innovate itself? In this article, the author explores these questions and more. The result could well be an increased velocity of activity and an emphasis on portfolio returns. Fiduciaries will emphasize investment process over celebrity culture. Portfolio risk will be managed, and alpha will be emphasized. Entrepreneurs will benefit from a lower cost of capital, and investors will realize real, after-tax alpha.

This study examines the relationship between the U.S. Venture Capital Index and the gross domestic product (GDP) growth rates of eight major world economies, including the United States, the United Kingdom, Switzerland, Japan, Germany, France, Canada, and Australia. The analysis involves reducing the dataset down to two explanatory components that best explain the variation in the dataset. Furthermore, an analysis has been performed for determining the robustness of the relationship between the U.S. Venture Capital Index and the extracted components representing the GDP growth rates of major economies. The results obtained using the weighted least squares method establishes that the U.S. Venture Capital Index has a high positive correlation with the two explanatory variables and that more than 70% of the variation is explained by the principal components representing the GDP growth rates.

Venture capital and private equity (VCPE) investments have been evolving as a potential source of corporate finance, forming a part of India’s emerging story. The role of VCPE investments in fueling business creation, innovation, and growth in India cannot be understated. Through an enabling regulatory environment and favorable macroeconomic indicators, India went through many life stages in the growing trends of VCPE investments before reaching its present level of importance today. This study analyzes the factors affecting the growth trends of VCPE investments in India from 1998–2016 in terms of the value of investments and number of deals and the penetration of VCPE investments across various industries in India. At the current pace of development of equity, bonds, external commercial borrowings, and bank credit pools, VCPE investments will have to double in order to fund the government’s growth targets.

The Australian business landscape is characterized by a high proportion of small businesses relative to other developed economies, partly due to the lack of equity finance for small businesses. Repeated government inquiries and policies have recognized this need, and yet the supply of equity capital to early-stage enterprises remains low relative to levels in other comparable economies. The author examines this lack of equity finance and the failed government attempts to develop a venture capital industry. While policy announcements by the current government address some past shortcomings, restrictions on investors flexibility and the selective targeting of specific industries and businesses suggest little change may be expected.

Confidence is an essential factor in making decisions about the future and is a key indicator that is tracked closely for many market participants (e.g., CEOs, consumers, homebuilders, etc.). Venture capitalists, as long-term investors in innovative firms that disrupt existing industries and create new ones, make decisions based in part on their confidence in future conditions. However, there has been relatively little systematic research into venture capitalists’ confidence and its relation to industry outcomes. This article reviews a long-term continuing study of Silicon Valley Venture Capitalists’ confidence in the future high-growth entrepreneurial environment, measuring confidence among Silicon Valley venture capitalists and assessing the factors driving confidence based on the commentary of the responding VCs each quarter from Q1 2004 to the present.

Private equity shareholder agreements are essential to the successful relationship between venture capital (VC) providers and recipients and are structured to balance the interests and objectives of both parties. However, these contracts are complex and contain a broad range of design options. The authors propose a model to classify early-cycle companies into four groups according to two dimensions: bargaining power and development state. Their survey of VC providers suggests most VC contracts include a core set of standardized investor rights. Additionally, there are varying rights according to the degree of bargaining power and development state, preserving contract flexibility to accommodate a range of investment prospects.

Brazil is an emerging market that has attracted a lot of private equity (PE) and venture capital (VC) investment in the last 20 years. Foreign exchange rates fluctuated significantly during this period, as in many emerging markets. This article investigates the currency impact on Brazilian PE/VC deal performance during this period. Our main findings are that in the long run, currency risk is irrelevant, but it is substantial at the deal level and, depending on the vintage, also at the fund level. Funds raised in the beginning of a devaluation cycle have their performances significantly deteriorated by currency movements, and the opposite is true for funds raised in the beginning of a currency appreciation cycle. Although there is diversification across deals, depending on the vintage, some funds may not be able to diversify across cycles, and foreign exchange risk may affect funds’ performance and fees and may distort general partners’ track records.

In this study, the decision model for the evaluation of a venture firm is derived by using Analytical Hierarchical Process. All the evaluation criteria are arranged in a hierarchical manner and divided into several sub-criteria, and the priorities of each alternative criterion are then systematically examined by using each one’s derived weight. The finding of this study is consistent with a report published by Bain Capital in collaboration with the Indian Venture Capital Association in 2015, which showed that the focus of venture capitalists has shifted toward the high-technology industry and that there is a high demand for non-imitable technology products.

The authors study the geographical and time series dynamics of crowdfunding and the degree to which it substitutes or it enhances venture capital (VC). Their findings support the argument that crowdfunding is a substitute of traditional VC for seed capital but it complements VC activity for subsequent rounds of financing. Consistently, they also find that crowdfunding activity clusters in the same main centers as venture capital financing.

Post liberalization in 1991, the private equity (PE) industry has played a significant role in India’s growth story, contributing more than $100 billion of stable long-term capital in the last 15 years. Owing to its fast emergence, the PE industry went from having ad-hoc regulation to a formal regulatory framework. This evolution presents a good case to study and understand financial policy making as it happens in emerging markets. This article is also a comprehensive guide for PE investors who want to understand the history and landscape of PE regulations in India. The authors track the evolution of regulatory environment for the PE industry in India, from SEBI (Venture Capital Funds) Regulations 1996 to the SEBI (Alternative Investment Funds) (Amendment) Regulations 2013, which govern the industry today. This historical study shows that while regulators in emerging markets are usually reactive rather than proactive, it also emphasizes the importance of effective regulation in boosting an important industry like PE. It highlights the fact that a regulator should not create regulations in isolation; it is critical to take inputs from different stakeholders to develop effective regulations.

Sponsor-driven initial public offerings (IPOs) remain one of the predominant methods for venture capital and private equity funds to exit their investment in a portfolio company, even after the IPO declines of 2015 and the volatility of 2016. This article provides a brief checklist of legal items for sponsors engaging in an IPO exit. It provides a guideline for the questions that sponsors and their counsel should consider when undertaking an IPO exit.

It is not unusual for venture capital (VC) and private equity (PE) firms to make bridge loans to companies they control when those companies encounter financial distress and face a liquidity crunch. VC and PE firms should be aware of the potential attacks that may be brought against their position as bridge lenders in the event of an ultimate bankruptcy or insolvency of the borrower. Based on the law that has developed in the federal circuit courts of appeal, bridge loans made by VC and PE firms (and by others) in good faith and with some foresight should generally not be susceptible to successful attacks. The authors discuss the reasons why it is imperative to recognize the economic realities of modern finance and the frequently limited options available to financially distressed businesses.

This study analyzes the investment strategies of venture capital/private equity (VC/PE) funds in the Indian infrastructure sector and examines whether they differ in terms of their stages of investment on the basis of a fund’s characteristics, subsector of investment, and deal characteristics. Findings are based on data sourced from Venture Intelligence Database, with a sample of 573 VC/PE investment transactions in the Indian infrastructure sector announced during the 2004–2015 period. VC/PE funds are more inclined to invest at late stages of development to counter the risks of uncertainty and information asymmetry prevalent in the infrastructure projects. The article also indicates that VC/PE funds differ in terms of their stages of investment on the basis of investor type, number of investors in a deal, and subsector of investment.

This article examines variation in creditor protection laws to empirically investigate their effect on country-level venture capital investment in Africa. Results, using bank branch density as an instrumental variable, indicate that stronger creditor protection laws have significantly positive effects on seed, start-up, and early and expansion venture capital investments. In addition, the magnitude of such effects on investment at both venture capital stages is relatively larger than the effects on private equity investment. This supports the theory that the effects of a shock to financially constrained companies in imperfect financial markets are magnified when information asymmetry is more severe.

This article examines the funding of early stage life sciences ventures. We explore 10 early stage life sciences ventures for an in-depth examination of their experiences. Our findings suggest that the capitally intensive nature of starting life sciences firms makes investment capital paramount. While venture capital is important, we find that other funding sources can play a crucial role in funding early growth. Optimal financial strategies to develop financial resources in early stage life sciences ventures require analyzing the paths, positions, and processes related to obtaining capital that a firm has available.

Expansion through acquisitions with the assistance of venture capital offers a unique business opportunity for entrepreneurial firms in the emerging markets of Central and Eastern Europe. This article focuses on Green Booth, a venture capital–backed entrepreneurial firm that expanded its business through acquisitions. The case study analyzes two financial development scenarios and provides actual financial results. The case also notes the value of proceeds achieved by the founding entrepreneur and participating venture capitalists.

In this article, we review the literature on the performance of private equity funds, venture capital funds, fund of funds, buyouts, and reverse buyout funds. We also examine the factors driving performance persistence in private equity funds and in buyout funds. Finally, we describe recent findings on the factors driving private equity returns and review the recent literature related to performance assessment of private equity funds.

In general, states have recognized the need to diversify state economic incentives from solely targeting transient businesses to relocate into the state to creating knowledge-based homegrown economies. The intent is to reward and motivate investment and, in the process, create high-growth, high-wage employment opportunities. Currently, 26 states have enacted legislation to incent equity investors to invest in high-risk, early-stage ventures in an attempt to stimulate state economies. The practice is widespread, growing, and competitive. The credits are legislated state by state, creating unique features and rules based on state-specific incentives. The drafted legislation also reflects the hoped-for effect on state-specific economic outcomes. This article highlights state equity tax credit activity and its application to the investment community.

Prior research has examined the impact of board structure on firm performance and found that characteristics such as board size affect both operating and stock price performance. Existing research has concentrated primarily on performance in periods well removed from a firm’s initial public offering (IPO), and relatively little research has examined the impact of board structure on the stock price performance of IPOs, particularly with regard to characteristics other than board size. This study fills this gap, finding that the key board characteristic is the percentage external directors on the board. The authors find that the greater the percentage of external board members, the lower the firm’s underpricing or initial return. This result is particularly pronounced for firms with venture capital backing, suggesting that VCs provide certification value, although primarily when they have a deep involvement in the issuing firm.

This article investigates the determinants of staged financing of venture capital/private equity (VC/PE) funds in the Indian infrastructure sector. We test whether staging used by VC/PE funds reduces information asymmetry and uncertainty associated with infrastructure investments. The findings indicate that staging is more pronounced for new infrastructure firms and at early stages of development. The results are consistent the existing evidence that staging being more pronounced in syndication also mitigates the holdup problem induced through staging. Furthermore, the authors find evidence that the evaluation process used by experienced VC/PE funds reduces the potential danger of adverse selection as well as the need for staging. These findings are inconsistent with the view that VC/PE funds less acquainted with the country of operation are more inclined to use staging.

The authors examine how venture capitalists can give revenue, operating income, and net operating income– based targets to entrepreneurs’ post funding their respective ventures. They first analyze the total funding in terms of equity and debt to fund capital expenditure and then separate out comparable companies trading in the same industry, offering similar products and in the same revenue range (large cap, mid cap, or small cap). They focus on examining capital expenditure relative to revenue, operating profit, and net operating profit ratios.

1. Vincent Jocquet 1. is vice president of finance and operations at Sentiance in Antwerp, Belgium. (vincent.jocquet{at}sentiance.com) 2. Sven H. De Cleyn 1. is professor of entrepreneurship at the University of Antwerp in Antwerp, Belgium, and incubation programs manager at iMinds in

1. Manu Sharma 1. is an assistant professor at Panjab University in Chandigarh, India. (dif.manu{at}yahoo.com) 1. To order reprints of this article, please contact Dewey Palmieri at dpalmieri{at}iijournals.com or 212-224-3675 . In this article, we work on building a theory that

This study explores the mechanisms behind the successful venture capital (VC) financing in Israel. Known as the most successful Silicon Valley-style economy, Israel presents an interesting case of effective institutional setting and policies that make the country a high-tech miracle. The analysis was done based on the competitive Diamond model. The results show that the thriving Israeli high-tech clusters are the result of Triple Helix interactions and government-led policies in creating the VC industry, with the financial support of the Yozma program as well as foreign funding. Importantly, government financing did not crowd out, but rather crowded in, private investments. The article provides lessons on Silicon Valley-style management that can be applied to other emerging nations.

As financial investors in portfolio companies, venture capital (VC) firms are expected to add value through continuous monitoring and sustained involvement. Such an effort is expected to give VC-backed IPO firms (VC IPOs) an edge over those IPO firms not backed by VCs. We examine such value additions use a comparative analysis of operating and stock performance data of VC IPOs against three groups of non-VC POs. We identified a set of 92 VC IPOs and 182 non VC IPOs. The 182 non-VC IPOs were further subdivided into industry and size groups. While Wilcoxon tests were used to compare the medians of operating and stock performance, panel data regression models were used to establish the impact of VC on those differential performances. We find that the medians of VC IPOs on most operating performance parameters are better than non-VC IPO groups. But the relational tests could not attribute the better performance to VC influence. We conclude that this could be indicative of VCs’ superior ability to identify promising ventures and push them toward their maximum potential. This study is one of the pioneering efforts in exploring VC value creation in the Indian context. We also extend the capital market research in accounting to a VC context.

Delaware courts have recently been highly critical of boards of directors of venture capital- and private equity-backed private companies and the process by which related party transactions are conducted, approved, and ultimately consummated. Following the 2013 In re Trados Incorporated Shareholder Litigation and the 2014 In re Nine Systems Corporation Shareholders Litigation, practical tips to venture capital and private equity funds (and their representatives who serve on the boards of directors of their portfolio companies) are provided when considering significant transactions in which a venture capital or private equity fund may be treated more favorably than other holders of equity or other classes of equity. Transactions range from inside-round recapitalizations or financings to sales of the entire business.

A recent hit movie, The Wolf of Wall Street, highlighted the fraudulent activity of the investment bank Stratton Oakmont. Unfortunately, this was not the only such financial firm convicted of illegal behavior during the 1990s; there were at least 34 Initial Public Offering (IPO) underwriters that were the subject of SEC enforcement during this period. I examine the characteristics of IPOs underwritten by these investment banks, particularly as they compare to other IPOs. I find that IPOs underwritten by sanctioned investment banks (particularly those that were less active in the IPO market) were significantly different with respect to both firm and offer characteristics, including having higher underpricing and worse long-term performance. Further, such IPOs, while less likely to be backed by a venture capitalist, were positively impacted by this third-party relationship, in that underpricing was lower and long-term return was higher; this is likely due, at least in part, to the certification role provided by venture capitalists.

This article investigates the performance of Brazilian private equity (PE) and venture capital funds between 1990 and 2013. The Spectra-Insper database is used for information about gross returns and multiples. Investment amounts are collected from what General Partners report in Private Placement Memorandum or that are hand collected by the CVM (Brazilian Security Exchange Commission) or other commercial sources. The performance of 46 funds is analyzed. The average IRR of Brazilian funds is higher than the average of U.S. funds over the same period. We observe that Brazilian funds with vintage years between 1990 and 1997 underperform U.S. PE funds on average, but those with vintage years between 1998 and 2008 outperform U.S. PE funds. This pattern may reflect a learning curve in Brazilian PE industry. We find evidence that performance in Brazil has a higher cyclicality than in the U.S., but this may be due to the small sample size rather than the emerging market effect.

There was a time when angel investors committed funds for market research and later, when the Internet boom hit, entire deals with entrepreneurs were sketched out on cocktail napkins. This relationship started to fall apart with down-rounds, dilution, changes to board representation, a general lack of appreciation regarding the early-risk assumption, and a number of other factors. However, over time, they both realized they needed each other, and what the angels developed was a greater understanding of the investment process. Angel investors, becoming more sophisticated, began to adopt some of the strategies and valuation methodologies employed by the venture capital community. Though varied, these methodologies often serve as the framework for the pre-money valuation negotiations for a pre-revenue venture. Research suggests that today’s angel is focused on return on investment, investment timelines, dilution, and other assessment factors that were historically reserved for the venture capital community.

Venture capital industry specialization enhances the performance of funded initial public offerings. Initial public offering survival rates and performance are higher when backed by single-industry venture capitalists. This presents useful investment analysis for portfolio managers, when adding venture capital to their investment portfolio. The study benefits from data, specifically the Capital IQ venture capital dataset, which have not been used in other venture capital research articles.

The study is to investigate the importance of institutional forces to shape the venture capitalists’ (VC) investment activities of VC firms in China, India, Japan and Hong Kong and has reached a few of interesting findings. Firstly, in China and India, the venture capital funding is focused on early-stage ventures and the government support is an important factor that results in high number of VC deals at early stage in both China and India even though their legal systems to protect investors are not strong. Secondly, in Japan and Hong Kong, most VC funding is provided at expansionary and later stages of development of ventures because of their well-established stock market. Thirdly, availability of government financial incentives for establishment of high-tech ventures is not the most critical driver to increase the possibility of young ventures getting VC funding. Finally, the article discovers a substitution effect of social networks and legal systems in Asian venture capital markets. Entrepreneurs with good social networks with venture capitalist are highly likely to get venture capital financing to support their businesses, as the relationship is one of the most important selection criteria to investment decisions. TOPICS:Real assets/alternative investments/private equity, emerging

“Globalization” has recently been a prominent theme in the venture capital (VC) industry. According to the Deloitte Touche Tohmatsu 2009 Global Venture Capital Survey, 52% of VCs already invest outside their home countries (Madhavan and Iriyama [2012]). Once exclusive to OECD countries, cross-border VC investment opportunities are now emerging in countries such as China and India (Saxsenian [2006]). Originally, this trend was promoted by Western venture capitalists. For example, Kleiner Perkins Caufield & Byers (KPCB), one of the top-tier venture capital firms in Silicon Valley, has operated satellite offices in Beijing and Shanghai since 2007.

Several hurdles hamper the commercialization of (scientific) knowledge, especially in Europe. Both from a financial and operational perspective, opportunities emerge for new business models to support new technology-based firms’ (NTBFs) development, including academic spin-offs (ASOs). This article introduces the founding angels (FA) concept and provides empirical evidence based on expert interviews and survey data collected from key stakeholders to elucidate the potential of this business model. The results suggest FAs could provide more early-stage support for NTBFs and ASOs to complement the support from business angels or venture capitalists. A survey of technology transfer offices indicates that they might see a relevant role for the FA in successfully bringing more technologies to the market.

Many industry analysts have cited the significant downsizing of venture capital, yet the future of venture capital does not need to remain grim. An analysis of the framework and operating principles of venture capital reveals areas of improvement that will minimize the effects of negative external economic forces. An examination of the historical impact of venture capital and the factors precipitating its downsizing reveals opportunities for a resilient venture firm less affected by market forces and able to deliver optimal returns on investments. The author presents the research within the context of the four phases: investment screening, selection, monitoring, and exit. The author offers best practice research (through interviews of experienced venture investors and supplemented by secondary research) and suggests alternate strategies for venture firms to consider.

This article discusses the policy context in which investments by non-Chinese secondary buyers are viable. It also analyzes some regulation-driven structuring considerations. Because the regulatory context for public stock acquisition is highly differentiated from that for private company stock acquisition, this article discusses only private company stock acquisition, with a focus on acquisitions of portfolio companies, and analyzes the regulations impacting the acquisition of venture capital and private equity fund interests.

The authors recently completed the first-ever study of how venture capitalists systematically help their portfolio companies grow. They found that certain VCs are aggressively building out a focused portfolio operations skillset and recruiting more people with operational backgrounds. Based on a range of sources, the authors believe that most funds with well-developed “portfolio operator” models have top-quartile returns (above 20% internal rate of return in the relevant time periods). The authors detail the resources that operationally focused VCs have to leverage and how exactly they assist their portfolio companies.

Many private equity and venture capital firms believe that few, if any, of their funds’ portfolio companies engage in traditional governmental affairs activities such as lobbying or making political contributions to elected officials or candidates. Consequently, they often opt not to conduct a proper due diligence analysis on the political activity of a current or potential portfolio company target. We consistently find, however, that many companies across a range of industries do in fact engage in political activity to varying degrees, and the same attributes that make a company an attractive potential acquisition are also those that would lead a company to be politically active. Higher Security and Exchange Commission scrutiny on private funds will not only reveal compliance issues with regulatory consequences, but also raise issues for the fundraising for future funds.

In this article, the authors explore the impact of venture capitalists on new venture internationalization. Based on 18 in-depth case studies, common patterns of how resource provisioning by venture capitalists influences international growth in their portfolio companies are outlined. Slack financial resources and heterogeneous non-financial resources provided by venture capitalists positively enhance the scale of internationalization in new ventures. In addition, the results emphasize a behavioral view of the relationship between venture capitalists and entrepreneurs, wherein the venture capitalist encourages the entrepreneur to strive for fast international growth.

This article intends to shed light on the process and increase the probability of a successful fundraising effort. Founders of a startup should prepare for the initial fundraising before contacting carefully targeted prospective investors. When meeting with these funds, the team can ask the funds to explain the steps the fund will make in deciding whether or not to invest. The startup team should: pay close attention to what is being said and done by prospective investors; not waste time on those prospects who do not appear engaged; and solicit more than one term sheet so the company is not forced to accept undesirable terms.

This article reexamines the performance of private equity (PE) funds by including data from more recent PE vintages and by using a measure of PE performance that considers the opportunity cost that investors incur between the commitment and capital call dates and the duration of PE investment. The primary results indicate that 1) buyout funds have better standalone long-term risk–return characteristics than public equity markets and they perform counter-cyclically to public equity markets; 2) when venture funds are combined with buyout funds, the resulting mix provides a more attractive alternative to public equity markets than buyout funds alone provide; and 3) venture funds’ higher absolute returns as compared to buyout funds and public equity markets are restricted to a few vintages and a small number of big winners in those vintages. Other findings suggest that a manager’s past PE fund performance is a weak basis for forecasting future PE fund performance and that fund size is positively correlated with performance for venture funds but negatively correlated with performance for buyout funds.

Using a database combining survey responses and archival data on 32 venture capital (VC) firms, the authors test whether professional compensation, strategy, and institutional environment affect entrepreneurial financing practices, such as contractual term choice and deal source choice. The results suggest that contract design fundamentally depends on the VC manager’s compensation system (particularly, carried interest compensation), the investor’s leadership in investment syndications, and the institutional environment. VC firms significantly tend to require control rights and liquidation rights in country’s with poor investor protection. The results also show that selection of deal sources depends on co-investment options, investment stage preference, leadership in investment syndications, and industry expertise.

Private equity in emerging markets is experiencing an important change, as local institutional investors are coming of age and becoming more sophisticated. The development of private equity and other alternative assets will have a positive impact on the development of other financial institutions, which will create productive growth overtime. This article focuses on Mexico and refers to other emerging markets, including Brazil.