Hege, Ulrich and Palomino, Frederic and Schwienbacher, Armin (2009): Venture capital performance: the disparity between Europe and the United States. Published in: Finance , Vol. 30, No. 1 (May 2009): pp. 7-50.
Download (259kB) | Preview
This paper compares the success of venture capital investments in the United States and in Europe by analyzing individual venture-backed companies and the value generated within the stage financing process. We document that US venture capitalists generate significantly more value with their investments than their European counterparts. We find differences in contracting behavior, such as staging frequency and syndication, and evidence that they help to explain the observed performance gap and we report a substantial unexplained residual. We find that US venture funds investing in Europe do not perform better their European peers. European Common Law and Civil Law countries exhibit comparable levels of venture performance, and differences in stock market development or tax subsidies in favor of venture investments are unrelated to performance differences. European IPO exits from venture investments yield returns similar to the US, while trade sale exits weakly underperform. We attribute the overall performance gap essentially to the segment of poorly performing companies.
|Item Type:||MPRA Paper|
|Original Title:||Venture capital performance: the disparity between Europe and the United States|
|English Title:||Venture Capital Performance: The Disparity Between Europe and the United States|
|Keywords:||venture capital performance, financial development, stage financing, exit, monitoring|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
|Depositing User:||Ulrich Hege|
|Date Deposited:||19. Jun 2012 22:12|
|Last Modified:||12. Feb 2013 08:31|
Admati, A. and P. Pfleiderer (1994), "Robust Financial Contracting and the Role of Venture Capitalists," Journal of Finance 49, pp. 371-402.
Aghion, P. and P. Bolton (1992), "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies 59, pp. 473-494
Bascha, A. and U. Walz (2001) "Convertible Securities and Optimal Exit Decisions in Venture Capital Finance," Journal of Corporate Finance 7, pp. 285-306.
Barry, C., C. Muscarella, J. Perry and M. Vetsuypens (1990), "The Role of Venture Capital in the Creation of Public Companies: Evidence from the Going Public Process," Journal of Financial Economics 27, pp. 447-471.
Bergemann, D. and U. Hege (2003), "The Value of Benchmarking," in: J.A. McCahery, L. Renneboog (eds.) Venture Capital Contracting and the Valuation of High Tech Firms, Oxford: Oxford University Press, pp. 83-107.
Berk, J., R. Green, and V. Naik (2004), "Valuation and Return Dynamics of New Ventures," Review of Financial Studies 17, pp. 1--35.
Black, B. and R. Gilson (1998), "Venture Capital and the Structure of Capital Markets: Banks versus Stock Markets," Journal of Financial Economics 47, pp. 243-277.
Bottazzi, L., M. Da Rin and T. Hellmann (2008), "Who are the Active Investors? Evidence from Venture Capital," Journal of Financial Economics 89 (3), pp. 488-512.
Bottazzi, L., M. Da Rin and T. Hellmann (2007), "What Role of Legal Systems in Financial Intermediation? Theory and Evidence," forthcoming, Journal of Financial Intermediation.
Casamatta, C. (2003) "Financing and Advising. Optimal Financial Contracts with Venture Capitalists," Journal of Finance 58, pp. 2059-2085.
Casamatta, C. and C. Haritchabalet (2007), "Experience, Screening and Syndication in Venture Capital Investments," Journal of Financial Intermediation 16, pp. 368-398.
Cestone, G., J. Lerner and L. White (2005), "The Design of Syndicates in Venture Capital," Working Paper, University of Lausanne.
Cochrane, J. (2005), "The Risk and Return of Venture Capital," Journal of Financial Economics 75, pp. 3-52.
Cornelli, F. and O. Yosha (2003), "Stage Financing and the Role of Convertible Debt," Review of Economic Studies 70, pp. 1-32.
Cumming, D., G. Fleming and A. Schwienbacher (2006), "Legality and Venture Capital Exits," Journal of Corporate Finance 12, pp. 214-245.
Cumming, D. and U. Walz (2004) "Valuation and Disclosure of Private Equity Investments Around the World," University of Frankfurt, CFS WP No. 2004/05.
Cumming, D., D. Schmidt and U. Walz (2008) "Legality and Venture Governance around the World," forthcoming, Journal of Business Venturing.
Cuny, C. J. and E. Talmor (2003) "The Staging of Venture Capital Financing: Milestones vs. Rounds," Working Paper, Texas A&M University and London Business School.
Da Rin, M. G. Nicodano and A. Sembenelli (2006) "Public Policy and the Creation of Active Venture Capital Markets," Journal of Public Economics 80 (8-9), pp. 1699-1723.
EVCA (European Venture Capital Association) (2003) "Benchmarking European Tax and Legal Environments," EVCA Benchmark Paper, Zaventem, http://www.evca.com/images/attachments/tmpl_9_art_60_att_321.pdf.
Gilson, R. and D. Schizer (2002), "Understanding Venture Capital Structure: A Tax Explanation for Convertible Preferred Stock," Columbia Law School WP No. 230.
Gompers, P. (1995), "Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance 50, pp. 1461-1489.
Gompers, P. and J. Lerner (1999), The Venture Capital Cycle, Cambridge: MIT Press.
Gottschalg, O. and L. Phallipou (2007), "Performance of Private Equity Funds: Another Puzzle?" Review of Financial Studies, forthcoming.
Hellmann, T. (1998), "The Allocation of Control Rights in Venture Capital Contracts," Rand Journal of Economics 29, pp. 57-76.
Hellmann, T. (2002), "A Theory of Strategic Venture Investing," Journal of Financial Economics 64, pp. 285-314.
Hochberg, Y., A. Ljungqvist and Y. Lu (2007), "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance 61 (1), pp. 251-302.
Jones and Rhodes-Kropf (2004) "The Price of Diversifiable Risk in Venture Capital and Private Equity," mimeo, Columbia University Graduate School of Business, http://www0.gsb.columbia.edu/faculty/mrhodeskropf/papers/VCRiskReturnRFS.pdf
Kahneman, D. and A. Tversky (1979), "Prospect Theory: An Analysis of Decisions under Risk," Econometrica 47, pp. 313-327.
Kaplan, S. and A. Schoar (2005), "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance 60, pp. 1791-1823.
Kaplan, S. and P. Strömberg (2003), "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies 70, pp. 281-315.
Kaplan, S., F. Martel and P. Strömberg (2007), "How Do Legal Differences and Learning Affect Financial Contracts?" Journal of Financial Intermediation 16, pp. 273-311.
Lakonishok, J., A. Shleifer, R. Thaler and R. Vishny (1991), "Window Dressing by Pension Fund Managers," American Economic Review 81, pp. 227-231.
La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny (1997), "Legal Determinants of External Finance," Journal of Finance 52, pp. 1131-1150.
La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny (1998), "Law and Finance," Journal of Political Economy 106, pp. 1113-55.
Lerner, J. (1999) "The Government as Venture Capitalist: An Empirical Analysis of the SBIR Program," Journal of Business 72, pp. 285-318.
Lerner, J. and A. Schoar (2004), "Transaction Structures in the Developing World: Evidence from Private Equity," NBER WP No. 10348.
Ljungqvist, A. and M. Richardson (2003), "The Cash Flow, Return and Risk Characteristics of Private Equity," http://papers.ssrn.com/sol3/papers.cfm?abstract_id=369600
Manigart, S., K. DeWaele, M. Wright, K. Robbie, P. Desbrieres, H.J. Sapienza, and A. Beekman (2002), "The determinants of the required returns in venture capital investments: a five-country study," Journal of Business Venturing 17, pp. 291-312.
Mayer, C., K. Schoors, and Y. Yafeh (2005), "Sources of funds and investment activities of venture capital funds: evidence from Germany, Israel, Japan and the UK." Journal of Corporate Finance 11, pp. 586-608.
Neher, D. (1999) "Stage Financing: An Agency Perspective," Review of Economic Studies 66, pp. 255-274. Raj : Rajan, R.G. (1992), "Insiders and Outsiders: The choice between informed and arm's length debt," Journal of Finance 47, pp. 1367-1400.
Rajan, R.G. and L. Zingales (2003), "The Great Reversals: The Politics of Financial Development in the Twentieth Century," Journal of Financial Economics 69, pp. 5-50. Repullo, R. and Suarez, J. (2004), "Venture Capital Finance: A Security Design Approach," Review of Finance 8, pp. 75-108.
Riyanto, Y. and A. Schwienbacher (2006), "On the Strategic Use of Corporate Venture Financing for Securing Demand," Journal of Banking and Finance 31, pp. 679-702. Schw : Schwienbacher, A. (2004), "An Empirical Analysis of Venture Capital Exits in Europe and in the United States," mimeo, University of Amsterdam.
Sahlman, W. (1990), "The Structure and Governance of Venture-Capital Organizations," Journal of Financial Economics 27, pp. 473-521.
Sapienza, H., S. Manigart, and W. Vermeir (1996), "Venture capital governance and value-added in four countries," Journal of Business Venturing 11, pp. 439-469.
Schmidt, K. (2003), "Convertible Securities and Venture Capital Finance," Journal of Finance 58, pp. 1139-65
Schmidt, D. and M. Wahrenburg (2003), "Contractual Relations between European-VC Funds and Investors: The Impact of Reputation and Bargaining Power on Contractual Design," RICAFE WP 12, http://ww.lse.ac.uk/ricafe.
Woodward, S. and R. Hall (2003), "Benchmarking The Returns to Venture," NBER WP 10202, http://www.nber.org/papers/w10202.