바로가기메뉴

본문 바로가기 주메뉴 바로가기

logo

ISSN : 2287-1608

Article Contents

Prev Next
e-Submission

Vol.7 No.3
Citation Share

IPO/M&A Exits by Venture Capital in India: Do Agency Risks Matter?

Asian Journal of Innovation and Policy / Asian Journal of Innovation and Policy, (P)2287-1608; (E)2287-1616
2018, v.7 no.3, pp.534-563
https://doi.org/10.7545/ajip.2018.7.3.534
Kshitija Joshi (Indian Institute of Science)
Deepak Chandrashekar (Indian Institute of Science)
Kshitija, J. , & Deepak, C. (2018). IPO/M&A Exits by Venture Capital in India: Do Agency Risks Matter?. Asian Journal of Innovation and Policy, 7(3), 534-563, https://doi.org/10.7545/ajip.2018.7.3.534
  • Downloaded
  • Viewed
PDF Download

Abstract

Venture Capital Firms (VCs) encounter severe information asymmetry risks at almost every stage in their investment lifecycle. This paper explores the agency risks arising from information asymmetry during the stage of exits by VCs from the funded companies in their portfolio and how that impacts the incidence of specific types of type of exits (IPOs/M&As). In this empirical study, by using the data on IPO and M&A exits from venture capital-funded companies, we show how the ability of prospective buyers to better resolve agency risks is directly correlated with the incidence of the above exit types. Using the technique of logistic regression, we demonstrate that factors such as syndication, specialization focus of the VC firm (in terms of stage and sector) and the level of its social capital (proxied by its age and experience) drive the success rate of exits. This is one of first studies in context of exits from VC funded companies in the Indian context.

keywords
Venture capital, exits, agency risks, India, social capital, syndication, domain specialization

Reference

1.

Bain Consulting (2011, 2012, 2013, 2014, 2015, 2016) India Private Equity Report, From http://www.bain.com.

2.

Bala Subrahmanya, M.H. (2014) Why does India’s economic growth process falter?, Economic and Political Weekly, XLIX(8).

3.

Barney, J., Wright, M. and Ketchen Jr, D.J. (2001) The resource-based view of the firm: ten years after 1991, Journal of Management, 27(6), 625-641.

4.

Barry, C.B. (1994) New directions in research on venture capital finance, Financial Management, 3-15.

5.

Bartlett III, R.P. (2006) Venture capital, agency costs and the false dichotomy of the corporation, UCLA Literature Review, 54, 37.

6.

Black, B.S. and Gilson, R.J. (1998) Venture capital and the structure of capital markets: banks versus stock markets, Journal of Financial Economics, 47(3), 243-277.

7.

Brander, J., Antweiler, W. and Amit, R. (2002) lVenture capital syndication: improved venture selection vs. value added hypothesis, Journal of Economics and Management Strategy, 11(3), 423-452.

8.

Chandrashekar, D. and Bala Subrahmanya, M.H. (2018) Absorptive capacity, cluster linkages, and innovation: an evidence from Bengaluru high-tech manufacturing cluster, Journal of Manufacturing Technology Management, 29(1), 121-148.

9.

Cochrane, J.H. (2005) The risk and return of venture capital, Journal of Financial Economics, 75(1), 3-52.

10.

Cumming, D.J. and MacIntosh, J.G. (2001) Venture capital investment duration in Canada and the United States, Journal of Multinational Financial Management, 11(4), 445-463.

11.

Cumming, D.J. and MacIntosh, J.G. (2003a) A cross-country comparison of full and partial venture capital exits, Journal of Banking and Finance, 27(3), 511-548.

12.

Cumming, D.J. and MacIntosh, J.G. (2003b) Venture-capital exits in Canada and the United States, University of Toronto Law Journal, 101-199.

13.

Cumming, D. and Johan, S. (2010) Venture capital investment duration, Journal of Small Business Management, 48(2), 228-257.

14.

Cumming, D. and Dai, N. (2010) Local bias in venture capital investments, Journal of Empirical Finance, 17(3), 362-380.

15.

Devigne, D., Vanacker, T., Manigart, S. and Paeleman, I. (2013) The role of domestic and cross-border venture capital investors in the growth of portfolio companies, Small Business Economics, 40(3), 553-573.

16.

Economic Times (2015) Http://articles.economictimes.indiatimes.com/2015-03-9/news /60286506_1_idg-ventures-india-technology-startups-sebi-chairman-uk-sinha.

17.

Ernst and Young (2014) Adapting and evolving - global VC insights from http://www. ey.com.

18.

Giot, P. and Schwienbacher, A. (2007) IPOs, trade sales and liquidation: modelling venture capital exits using survival analysis, SSRN Electronic Journal, 31(3), 679-702.

19.

Gompers, P.A. (1996) Grandstanding in the venture capital industry, Journal of Financial Economics, 42(1), 133-156.

20.

Gompers, P. and Lerner, J. (1999) What drives venture capital fundraising?, National Bureau of Economic Research, W6906.

21.

Gompers, P.A. and Lerner, J. (2004) The Venture Capital Cycle, MIT press.

22.

Gujarati, D.N. (2012) Basic Econometrics, Tata McGraw-Hill Education.

23.

Hege, U., Palomino, F. and Schwienbacher, A. (2003) Determinants of venture capital performance: Europe and the United States, LSE Ricafe Working Paper 1.

24.

Huang, Y. and Khanna, T. (2003) Can India overtake china?, Foreign Policy, (137), 74.

25.

Hochberg, Y.V., Ljungqvist, A. and Lu, Y. (2007) Whom you know matters: venture capital networks and investment performance, Jounal of Finance, 62(1), 251-301.

26.

Joshi, K. (2015) Economics of venture capital industry in India: an analysis of the macro ecosystem and micro decision making, Unpublished Ph.D Thesis, Bangalore, India: Department of Management Studies, Indian Institute of Science.

27.

Joshi, K.A. and Subrahmanya, M.H. (2014, September) What drives Venture Capital fundraising in India: An empirical analysis of systematic and non-systematic factors. In Management of Innovation and Technology (ICMIT), 2014 IEEE International Conference, 35-40.

28.

Joshi, K. (2018a) Managing information asymmetry risks using deal syndication and domain specialization: an Indian context, Asian Journal of Innovation and Policy, 7(1), 150-177.

29.

Joshi, K. (2018b) Managing the risks from high-tech investments in India: differential strategies of foreign and domestic venture capital firms, Journal of Global Entrepreneurship Research, Forthcoming.

30.

Joshi, K. and Satyanarayana, K. (2014) What ecosystem factors impact the growth of high-tech start-ups in India?, Asian Journal of Innovation and Policy, 3(2), 216-244.

31.

Joshi K. (2018c) Emergence and persistence of high-tech start-up clusters: an empirical study of six Indian clusters, International Journal of Global Business and Competitiveness, Forthcoming.

32.

Kaplan, S.N. and Schoar, A. (2005) Private equity performance: returns, persistence, and capital flows, The Journal of Finance, 60(4), 1791-1823.

33.

Lerner, J. (1994) The syndication of venture capital investments, Financial Management, 16-27.

34.

Lerner, J. (1995) Venture capitalists and the oversight of private firms, The Journal of Finance, 50(1), 301-318.

35.

Livemint (2017) Article titled ‘Inside SoftBank’s India investment strategy’ by Snigdha Sengupta and Mihir Dalal, Https://www.livemint.com/Companies/rjLn8PbvwxREo 7GvWgn1cM/Inside-SoftBanks-India-investment-strategy.html.

36.

Livemint (2018) Article titled 'Venture capital in India: Are exits heating up? Or is it just an illusion?' by Radha Kizhanattam, Https://www.livemint.com/Money/U094 EuSmwfy7aZJzKI1ZGM/Venture-capital-in-India-Are-exits-heating-up-Or-istjus.ht ml.

37.

Long, J.S. (1997) Regression Models for Categorical and Limited Dependent Variables, Sage Publishing.

38.

Manigart, S., Waele, D., Wright, M., Robbie, K., Desbrieres, P., Sapienza, H. and Beekman, A. (2000) Venture capitalists, investment appraisal and accounting information: a comparative study of the USA, UK, France, Belgium and Holland, European Financial Management, 6(3), 389-403.

39.

Manigart, S., De Waele, K., Wright, M., Robbie, K., Desbrières, P., Sapienza, H. J. and Beekman, A. (2002) Determinants of required return in venture capital investments: a five-country study, Journal of Business Venturing, 17(4), 291-312.

40.

Mosey, S. and Wright, M. (2007) From human capital to social capital: a longitudinal study of technology‐based academic entrepreneurs, Entrepreneurship theory and practice, 31(6), 909-935.

41.

Myers, S.C. and Majluf, N.S. (1984) Corporate financing and investment decisions when firms have information that investors do not have, Journal of Financial Economics, 13(2), 187-221.

42.

Nahata, R. (2008) Venture capital reputation and investment performance, Journal of Financial Economics, 90(2), 127-151.

43.

Nikoskelainen, E. and Wright, M. (2007) The impact of corporate governance mechanisms on value increase in leveraged buyouts, Journal of Corporate Finance, 13(4), 511-537.

44.

Norton, E. and Tenenbaum, B.H. (1993) Specialization versus diversification as a venture capital investment strategy, Journal of Business Venturing, 8(5), 431-442.

45.

Panda, S. and Dash, S. (2016) Exploring the venture capitalist-entrepreneur relationship: evidence from India, Journal of Small Business and Enterprise Development, 23(1), 64-89.

46.

Planning Commission, India (2012) Creating a Vibrant Entrepreneurial Ecosystem for India’, Report of the Committee on Angel Investment and Early Stage Venture Capital from http://planningcommission.nic.in/reports/genrep/rep_eco2708.pdf.

47.

Sah, R.K. and Stiglitz, J.E. (1984) The architecture of economic systems: hierarchies and polyarchies, National Bureau of Economic Research, W1334.

48.

Sahlman, W.A. (1990) The structure and governance of venture-capital organizations, Journal of Financial Economics, 27(2), 473-521.

49.

Sapienza, H.J. (1992) When do venture capitalists add value? Journal of Business Venturing, 7(1), 9-27.

50.

Sapienza, H.J., Manigart, S. and Vermeir, W. (1996) Venture capitalist governance and value added in four countries, Journal of Business Venturing, 11(6), 439-469.

51.

Sapienza, H. J., De Clercq, D. and Sandberg, W.R. (2005) Antecedents of international and domestic learning effort, Journal of Business Venturing, 20(4), 437-457.

52.

Schwienbacher, A. (2009) Venture Capital Exits, Companion to Venture Capital, Wiley/Blackwell.

53.

Sorenson, O. and Stuart, T.E. (2001) Syndication networks and the spatial distribution of venture capital investments, American Journal of Sociology, 106(6), 1546-1588.

54.

SEBI (2015) Alternate capital raising platform from http://www.sebi.gov.in/cms/sebi_ data/ attachdocs/1427713523817.pdf.

55.

Venture Intelligence (2014). Database on Private Company Financials, Transactions & Valuations for India. http://www.ventureintelligence.com

56.

Wooldridge, J. (2012) Introductory Econometrics: A Modern Approach, Cengage Learning.

57.

Zarutskie, R. (2010) The role of top management team human capital in venture capital markets: Evidence from first-time funds, Journal of Business Venture, 25(1), 155-172.

Asian Journal of Innovation and Policy

e-Submission OA Policy