Cross-Border Exits from Venture Capital Investments: Impact and Determinants of Success for Ventures, Venture Capitalists, and Society as a Whole
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Helsinki University of Technology |
Diplomityö
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Authors
Date
2005
Department
Major/Subject
Yritysstrategia ja kansainvälinen liiketoiminta
Mcode
TU-91
Degree programme
Language
en
Pages
120+15
Series
Abstract
As the venture capital industry has grown and become ever more significant it has attracted an increasing amount of attention among scholars. However, the internationalization of venture capital exits has so far not been in the focus of academic studies. This thesis contributes to filling this gap by studying the impact and determinants of success of cross-border exits from venture capital investments. It focuses on the domain of growth oriented entrepreneurship and technological innovation in countries with small home markets. The thesis takes the view of the ventures, the venture capitalists that finance and support them, and society as a whole. The thesis approaches the problem using two interlinked studies: A quantitative study on European venture capital backed portfolio firms exited 1995-2004 and case studies on four Finnish venture capital backed high-technology firms exited 2000-2004. The results show that cross-border trade sales generate higher returns than domestic ones. An important underlying reason for this is that large multinational acquirers buy emerging high-technology firms because they can cheaply multiply the technologies created by them. They do this using their existing structures, e.g. manufacturing facilities. The products/services are then distributed using existing distribution channels, which are expensive to build but cheap to use once they exist. Cross-border trade sales and their higher valuations are driven by a lack of domestic companies with the required size active in the relevant industries. Cross-border trade sales are, thus, beneficial for portfolio firms as technologies that are not commercialized swiftly are likely to be bypassed by other technologies in the fast paced high-technology industries. Furthermore, due to the venture capital cycle, cross-border trade sales are crucial also because past exit success has a strong correlation with a venture capital firm's ability to raise future funds and thus stay in the business of venture capital. Consequently, cross border exits are crucial if venture capital is to be available to emerging high-technology firms in countries with small home markets. As a result, cross-border trade sales are also in the best interest of the society as a whole since emerging high-technology firms gain access to much needed complementary assets and capital, not available in the home country, through them. Cross-border IPOs are found to generate higher proceeds and post under-pricing market values than domestic ones. The reasons for this are mainly inefficiencies on the home stock markets; primarily volatility, clustering, information asymmetry, and lack of analyst coverage. In other words, cross-border IPOs are pursued because of better capital availability, reduced information asymmetry, stricter demands imposed on corporate governance, and increased liquidity due to a wider investor base.Description
Supervisor
Maula, MarkkuThesis advisor
Karppinen, IlonaPekkarinen, Erkki
Tarjanne, Artturi
Keywords
venture capital, exit, cross-border