Eckermann Venture Capitalists' Exit Strategies under Information Asymmetry
2006
ISBN: 978-3-8350-9018-7
Verlag: Deutscher Universitätsverlag
Format: PDF
Kopierschutz: 1 - PDF Watermark
Evidence from the US Venture Capital Market
E-Book, Englisch, 287 Seiten, eBook
ISBN: 978-3-8350-9018-7
Verlag: Deutscher Universitätsverlag
Format: PDF
Kopierschutz: 1 - PDF Watermark
Matthias Eckermann analyzes how venture capitalists (VCs) integrate information efficiency considerations into their exit strategies. He shows that VCs adopt specific strategies to cope with information gaps upon exit in terms of timing, exit vehicles and promotion efforts. On this basis he develops a framework to help VCs to improve profitability through decisive exit strategies.
Dr. Matthias Eckermann promovierte bei Prof. Dr. Michael Schefczyk am Lehrstuhl für Entrepreneurship und Innovation an der Technischen Universität Dresden. Er ist im Investment Banking in London tätig.
Zielgruppe
Research
Autoren/Hrsg.
Weitere Infos & Material
1;Preface;6
2;Table of Contents;8
3;Table of Figures;12
4;Table of Tables;14
5;Abbreviations;18
6;1. Introduction;19
6.1;1.1 Venture Capital Investments and Divestments;20
6.2;1.2 Information Asymmetry as Overall Problem;22
6.3;1.3 Literature Overview and this Study's Focus;32
6.4;1.4 Purpose of this Dissertation;34
6.5;1.5 Structure of this Study;36
7;2 Venture Capital Investing;39
7.1;2.1 Development Stages and Financing Requirements of Start- ups;39
7.2;2.2 Start- Up Finance;44
7.3;2.3 The Venture Capitalist's Business Model;53
7.4;2.4 Conclusive Remarks;79
8;3 Exiting Ventures;81
8.1;3.1 The Venture Capitalists' Exit Means;81
8.2;3.2 The Exit Process;92
8.3;3.3 Recent Exit Trends;99
8.4;3.4 Conclusive Remarks;104
9;4 Building an Analytical Framework;105
9.1;4.1 Exit Strategies in the Literature;105
9.2;4.2 Methodological Approach;118
9.3;4.3 The Venture's Business as Source for Information Asymmetries;127
9.4;4.4 Ex- Ante Uncertainty after Departures of Entrepreneurial Team Members;137
9.5;4.5 VC Intermediation as Source of Information Asymmetries;142
9.6;4.6 Pre- Tests of the Research Model;145
9.7;4.7 Conclusive Remarks;149
10;5 Research Methodology;151
10.1;5.1 Empirical Design;151
10.2;5.2 Data Collection;164
10.3;5.3 Employed Statistical Methods;176
10.4;5.4 Conclusive Remarks;181
11;6 Empirical Analysis;183
11.1;6.1 Confirmatory Analysis;183
11.2;6.2 Explorative Analysis;239
12;7 Conclusion and Implications;251
12.1;7.1 General Conclusions;251
12.2;7.2 Practical Implications;257
12.3;7.3 Limitations;261
12.4;7.4 Further Research;263
12.5;7.5 Closing Words;265
13;References;267
14;Appendices;295
14.1;A. 1 Semi- Structured Questionnaire for Pilot Studies;295
14.2;A. 2 Online Survey;296
14.3;A. 3 Contact Letter and Mails;303
Venture Capital Investing.- Exiting Ventures.- Building an Analytical Framework.- Research Methodology.- Empirical Analysis.- Conclusion and Implications.
1. Introduction (p. 1)
The term "Venture Capital" (VC) denotes resources that specialized investors provide to start-ups In order to help them commercialize their mainly high-technology Ideas. The early stage character of these projects makes VC investments exceedingly vulnerable to information asymmetries ex-ante and ex-post to the investment decision.
Research has long identified different states of information asymmetry that exist between entrepreneurs and venture capital firms (VCFs) - especially during the initial investment decision process. In fact, VC investments progress through several new investment cycles. Information asymmetries between incumbent and outside investors occur at every investment round although their extent declines. Eventually, the incumbent VCF"s" exit is subject to information asymmetries too - between incumbent Inside and outside follow-on investors.
Even though follow-on investors perfomn due diligence, they experience information spreads in that they cannot access every relevant piece of information. Either, prospective investors suffer from lower levels of specific knowledge or their access to information is limited by the entrepreneur and the VCF withholding less favorable details. Hence, the new investors" due diligence only reflects their constrained perception of the venture"s value. In fear of information disadvantages at exit, prospective investors discount their valuation to be compensated for their adverse selection risk and for their due diligence costs.
Moreover, if prospective investors do not recognize existing potentials, they cannot incorporate these potentials into their assessment and assume lower valuations. Information asymmetry leads to lower exit valuations and distresses the VCF"s proceeds from the investment. This thesis investigates information disadvantages of follow-on investors and looks into VCFs" strategies to overcome the costs of asymmetric information between inside and outside investors at exit. This dissertation"s underlying hypothesis states that the more pronounced information asymmetries are, the higher acquirers discount their offers. In managing infomriatlonal asymmetries at exit, the VCF can increase its profitability.
1.1 Venture Capital Investments and Divestments
The VC investing process lasts several years and involves a multitude of different activities. VCFs start with gleaning and selecting high potential investment opportunities which they provide with funding. In order to prevent the venture"s management from engaging in self-beneficial behavior, VCFs monitor their venture investments closely and stage capital infusions according to the accomplishment of interim goals. Besides supervising the venture"s progress, the VCF"s managers provide managerial support, they offer management assistance and access to their networks of potential customers, suppliers or financial service providers.
The VCFs" active involvement in their ventures distinguishes them from other types of rather passive equity investors. VCFs also stand out in that they initially stipulate measures enabling them to terminate changes in the private firm"s ownership structure and shape divestment strategies in their favor.
Researchers proclaim a direct correlation between entrepreneurial activity and economic growth. Entrepreneurship represents a major determinant of economic prosperity. According to the GEM 2000 Executive Report, about half of the difference in levels of economic growth across nations can be explained by the presence or lack of entrepreneurial activity. The importance of VC financing for economic growth derives from the fact that VC funding spurs entrepreneurial activities. The financial and non-financial resources VCFs provide enable start-ups to circumvent typical growth constrains such as of the inaccessibility of traditional sources of finance or of established industry networks.
