- P-ISSN2287-1608
- E-ISSN2287-1616
- KCI
ISSN : 2287-1608
Venture Capitalist's Stake and Valuation of Privately-held Firms in India
Arun Kumar Gopalaswamy (Indian Institute of Technology Madras)
Ravi Teja (PayPal)
Abstract
This study examines the implications on the valuations of privately held firms when stakes are acquired by venture capitalists in India. In addition, the effect of fund size and revenue multiple is considered as a determinant of firm value. The study is based on a sample of 1229 rounds of funding during the period 2007-2015. The data was obtained from Venture Intelligence. Three major observations emerged based on an OLS regression. Firstly, it is observed that the stake acquired by venture capitalists has a negative effect on firm value. It supports the belief that when a firm reaches its maximum valuation from the promoter's perspective, there is a tendency to liquidate additional stakes. Secondly, a positive association between the revenue multiple and valuation is recognized. Thirdly, the convex relationship (U-shaped) between the fund size and firm valuations as seen in the case of developed economies, appears to be non-existent in India.
- keywords
- Venture capital, Venture Capitalist’s equity stake, Firm valuation, Privately-held firms, India
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