Portmann, David and Mlambo, Chipo (2010): Private equity and venture capital in South Africa: A comparison of project financing decisions.
Download (643kB) | Preview
This paper investigates the manner in which private equity and venture capital firms in South Africa assess investment opportunities. The analysis was facilitated using a survey containing both Likert-scale and open-ended questions. The key findings show that both private equity and venture capital firms rate the entrepreneur or management team more highly above any other criterion or consideration. Private equity firms, however, also place emphasis on financial criteria more than venture capitalists. There is also an observable shift in the investment activities away from start-up funding and towards later-stage deals. Risk appetite has also declined post the financial crisis.
|Item Type:||MPRA Paper|
|Original Title:||Private equity and venture capital in South Africa: A comparison of project financing decisions|
|Keywords:||Private equity; venture capital; investment criteria; South Africa|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
N - Economic History > N2 - Financial Markets and Institutions > N27 - Africa; Oceania
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
|Depositing User:||C Mlambo|
|Date Deposited:||30. Nov 2012 15:01|
|Last Modified:||12. Feb 2013 14:25|
BANERJEE, A. 2008. Private equity in developing nations. Journal of Asset Management, 9: 158-170.
BELLEW, J., HUTTON, S. & DENNEHY, B. 2011. A Q&A guide to private equity law in South Africa. [Online]. Available at: http://incentives.practicallaw.com/4-376-4687 [accessed 2012-10-11].
BENT, N., WILLIAMS, K. & GILBERT, E. 2004. The syndication of private equity investments in South Africa. South African Journal of Business Management, 35(4): 39-48.
BERNILE, G., CUMMING, D. & LYANDRES, E. 2007. The size of venture capital and private equity fund portfolios. Journal of Corporate Finance, 13: 564–590
BRAU, J.C. & FAWCETT, S.E. 2006. Initial public offerings: an analysis of theory and practice. Journal of Finance, 61: 399–436.
CHAN, Y. 1983. On the positive role of financial intermediation in allocations of venture capital in a market with imperfect information. Journal of Finance, 3(4): 1543-1561.
DE LIMA RIBEIRO, L. & DE CARVALHO, G.A. 2008. Private equity and venture capital in an emerging economy: evidence from Brazil. Venture Capital, 10(2): 111-126.
DELOITTE & SAVCA. 2009. The calm after the storm? The South African Private Equity Confidence Survey. [Online]. Available at: www.savca.co.za. [Accessed on 2010-09-10]
DILLER, C. & KASERER, C. 2009. What drives private equity returns? – Fund inflows, skilled GPs, and/or risk? European Financial Management, 15(3): 643-675.
FARAG, H., HOMMEL, U., WITT, P. & WRIGHT, M. 2004. Contracting, monitoring, and exiting venture investments in transitioning economies: a comparative analysis of Eastern European and German markets. Venture Capital, 6(4): 257-282.
FRIED, V. & HISRICH, R. 1994. Toward a model of venture capital investment decision making. Financial Management, 23(3): 28–37.
GE, D., MAHONEY, J.M. & MAHONEY, J.T. 2005. New venture valuation by venture capitalists: An integrative approach. New York: Federal Reserve Bank of New York.
GILSON, R. 2003. Engineering a venture capital market: lessons from the American experience. Stanford Law Review, 55(4): 1067-1103.
GOMPERS, P.A. & LERNER, J. 2000. The Venture Capital Cycle. Cambridge, Massachusetts: MIT.
GRATCHEV, M.V. & BOBINA, M.A. 2001. Financial Resources for New Business in Russia: Desirable vs. Available. Venture Capital, 3(3): 263-274.
HEGE, U., PALOMINO, F. & SCHWIENBACHER, A. 2003. Determinants of venture capital performance: Europe and the United States. Working Paper, RICAFE.
HERRINGTON, M., KEW, J. & KEW, P. 2009. Tracking Entrepreneurship in South Africa: A GEM Perspective. UCT Graduate School of Business, Cape Town.
HERRINGTON, M., KEW, J. & KEW, P. 2010. Tracking Entrepreneurship in South Africa: A GEM Perspective. UCT Graduate School of Business, Cape Town.
HILL, B. & POWER, D. 2001. Inside Secrets to Venture Capital, Hoboken, NJ: John Wiley & Sons.
HUDSON, E. & EVANS, M. 2005. An international comparison of the valuation methods and techniques used by Australian VCs in the appraisal of new ventures. Enterprising Finance Journal, 10(1): 1-23.
JONES, M. 2009. An analysis of the reasons for the lack of early-stage venture capital funding in South Africa and proposals for its development. MBA Research Report: University of Cape Town Graduate School of Business.
KAKATI, M. 2003. Success criteria in high-tech new ventures. Technovation, 23: 447-457.
KPMG & SAVCA. 2008. Venture capital and private equity industry performance survey of South Africa covering the 2007 calendar year. [Online]. Available at: www.savca.co.za [accessed on 2010-09-10].
KPMG & SAVCA. 2010. Venture capital and private equity industry performance survey of South Africa covering the 2009 calendar year. [Online]. Available at: www.savca.co.za [accessed on 2010-09-10].
LEEDY, P.D. & ORMROD, J.E. 2010. Practical Research Planning and Design. New Jersey: Pearson.
LINGELBACH, D. & GILBERT, E. 2009. Toward a process model of venture capital emergence: the case of Botswana. Paper presented at Druid Summer Conference 2009, Copenhagen.
LINGELBACH, D., MURRAY, G. & GILBERT, E. 2008. The rise and fall of South African venture capital: A coproduction perspective. Paper presented at International Council for Small Business World Conference, Halifax.
LOCKETT, A. & WRIGHT, M. 2001. The syndication of venture capital investments. OMEGA: The International Journal of Management Science, 29: 375-390.
MACMILLAN, I.C., SIEGEL, R. & SUBBA NARASIMHA, P.N. 1985. Criteria used by venture capitalists to evaluate new venture proposals. Journal of Business Venturing, 1(1): 119-128.
MACMILLAN, I.C., ZEMANN, L. & SUBBA NARASIMHA, P.N. 1987. Criteria distinguishing successful from unsuccessful ventures in the venture screening process. Journal of Business Venturing, 2(2): 123-137.
MANIGART, S., DE WAELE, K., WRIGHT, M., ROBBIE, K., DEBRIERES, P., SAPIENZA, H. & 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.
MISHRA, A. 2004. Indian venture capitalists (VCs): Investment evaluation criteria. ICFAI Journal of Applied Finance, 10(7): 71-93.
MISSANKOV, I., VAN DYK, R., VAN BILJON, A., HAYES, M. & VAN DER VEEN, W. 2006. Is private equity a suitable investment for South African pension funds? Paper presented at the Convention of the Actuarial Society of South Africa, October 2006.
MUZYKA, D., BIRLEY, S. & LELEUX, B. 1996. Trade-offs in the investment decisions of European venture capitalists. Journal of Business Venturing, 11(4): 273-287.
PERREAULT, W.D. 1975. Controlling order-effect bias. The Public Opinion Quarterly, 39(4): 544-551.
PINTADO, T.R., DE LEMA, D.G.P. & VAN AUKEN, H. 2007. Venture capital in Spain by stage of development. Journal of Small Business Management, 45(1): 68-88.
QUINDLEN, R. 2000. Confessions of a Venture Capitalist: Inside the High-stakes World of New Venture Financing. New York, NY: Warner Books.
ROGERS, P., HOLLAND, T. & HAAS, D. 2002. Value acceleration: lessons from private equity masters. Harvard Business Review, 5(11): 94-101.
ROODT, S. 2007. Early-stage venture capital funding in South Africa: why is there a shortage and how can it be addressed? MBA Research Report: University of Cape Town Graduate School of Business.
SAHLMAN, W.A. 1988. Aspects of Financial Contracting in Venture Capital. Journal of Applied Corporate Finance, 21(2): 23-36.
SANDER, P. & KOOMAGI, M. 2007. Valuation of private companies by Estonian private equity and venture capitalists. Baltic Journal of Management, 2(1): 6-19.
SHEPHERD, D.A. 1999. Venture capitalists' assessment of new venture survival. Management Science, 45(5): 621- 632.
SMOLARSKI, J. 2007. Investment analysis in the private equity industry: a study of La Porta’s argument. International Journal of Emerging Markets, 2(4): 335-347.
STILLMAN, R., SUNDERLAND, J., HEYL, L. & SWART, H. 1999. A venture capital programme for South Africa: study and recommendations. Arlington, Virginia: Nathan Associates.
TYEBJEE, T. & BRUNO, A., 1984. A model of venture capitalist investment activity. Management Science, 30: 1051-1066.
VAN DEVENTER, B. & MLAMBO, C. 2009. Factors influencing venture capitalists’ project financing decisions in South Africa. South African Journal of Business Management, 40(1): 33-41.
VAN NIEKERK, J.R. & KRIGE, J.D. 2009. Analysis of sources of return in South African private equity. South African Journal of Business Management, 40(4): 1-12.
WAINWRIGHT, F. & GROENINGER, A. 2005. Note on angel investing, Case# 5-0001. Tuck School of Business at Dartmouth: Center for Private Equity & Entrepreneurship.
WRIGHT, M. & ROBBIE, K. 1998. Venture capital and private equity: a review and synthesis. Journal of Business Finance & Accounting, 25(5): 521-70.
WRIGHT, M., GILLIGAN, J. & AMESS, K. 2009. The economic impact of private equity: what we know and what we would like to know. Venture Capital, 11(1): 1-21.
ZIDER, B. 1998. How venture capital works. Harvard Business Review, Nov-Dec: 131-139.