Information Asymmetry Risks in Venture Capital (VC) Investments: Strategies of Transnational VC Firms in India

Joshi, Kshitija; Subrahmanya, M.H. Bala

doi:10.1007/978-981-10-6298-8_6

Cited by 6 publications

(6 citation statements)

References 47 publications

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“…While playing this intermediary role, impact investors suffer from a high degree of information asymmetry, which can lead to adverse selection and moral hazard (Joshi & Bala Subrahmanya, 2015). Impact investors have many tools at their disposal to minimize these risks.…”

Section: Conclusion and Discussionmentioning

confidence: 99%

“…Impact investors have many tools at their disposal to minimize these risks. For example, to avoid adverse selection, impact investors employ intensive due diligence processes, syndication, and specialization (Joshi & Bala Subrahmanya, 2015). Furthermore, to address the moral hazard danger, impact investors stage their investments in tranches, make use of contracts, and supervise their investees by taking board positions (Joshi & Bala Subrahmanya, 2015).…”

Section: Conclusion and Discussionmentioning

confidence: 99%

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Impact investing and sustainable market transformations: The role of venture capital funds

Holtslag

Chevrollier

Nijhof

2021

Business Ethics Env & Resp

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Impact investors often know their financial return on investments, but are less certain about their impact. This article frames impact as their contribution to sustainable market transformation. A sustainable market transformation consists of inception, first movers, critical mass, and institutionalization phases. Given the nature of such transformations, the impact is effectuated at different moments and toward various market actors. Based on an exploratory research design with semi‐structured expert interviews, this article aims to create an overview of the roles of impact venture capital funds in sustainable market transformations. The results suggest that the view that the capitalization of start‐ups is the only impact of impact investors is a misconception. The needs of companies with sustainability value propositions change over time and consequently impact investors perform various roles. For example, exiting an investment while upholding social and environmental objectives communicates to mainstream business that the start‐up is ready to create a greater impact. Further, impact investors fulfill external roles that change the perspectives of institutional actors toward sustainable investments. Based on an overview of the different roles that impact investors fill, this article proposes a future research agenda to strengthen our knowledge about the impact return of investments.

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Section: Conclusion and Discussionmentioning

confidence: 99%

Section: Conclusion and Discussionmentioning

confidence: 99%

Impact investing and sustainable market transformations: The role of venture capital funds

Holtslag

Chevrollier

Nijhof

2021

Business Ethics Env & Resp

View full text Add to dashboard Cite

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“…The preference of VCPE firms with foreign investors for late-stage investments vis-à-vis India dedicated investors may partly be driven by information asymmetry associated with early-stage deals, which they are not able to manage due to lack of geographical proximity to the investee firms (Annamalai & Kamat, 2012). Conversely, the geographical proximity of VCPE firms with India-dedicated investors to investee firms helps them monitor progress and manage such risks better resulting in higher preference for early-stage investments (Joshi & Subrahmanya, 2015;Pruthi et al, 2013). Besides, they are likely to have a better understanding of the Indian context.…”

Section: Discussionmentioning

confidence: 99%

“…Indeed, it has been observed that the proportion of early-stage deals are higher for domestic VCPE firms than for foreign ones (Annamalai & Kamat, 2012). Foreign investors prefer to invest in late-stage established companies where the risk is lower and they focus on strategic involvement, whereas domestic investors are more active in early-stage investments being closer to the investee firms geographically and thus being able to get involved in operational-level activities and thereby minimize the degree of risk (Joshi & Subrahmanya, 2015;Pruthi et al, 2003). Consequently, the investment philosophies of foreign and domestic firms are likely to be different with a focus on different stages of the life cycle of the investee firm.…”

Section: Type Of Vcpe Investormentioning

confidence: 99%

Antecedents of Stage-wise Investment Preferences of Venture Capital and Private Equity Firms in India: An Empirical Exploration

Dugar

Basant

2021

Journal of Emerging Market Finance

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This article is a maiden attempt at exploring determinants of stage-specific investment choices of Indian venture capital and private equity (VCPE) firms. Analysis of 5,782 VCPE investment deals during 1998–2016 shows that firms’ preferences to invest in various stages (early vs. late) are significantly affected by the characteristics of the VCPE firms, features of the deal, and characteristics of the investee firms. More specifically, experience and ownership (foreign vs. domestic) of VCPE firm, type of deal (syndicated or otherwise), investment size of the deal, and location and industry of the investee firm influence the stage of investment. Detailed empirical analysis shows that younger VCPE firms and those with domestic investors prefer to invest in early stages, presumably because they wish to build a reputation and also leverage their proximity with investee firms to manage high market and technological risks associated with early-stage investments. Syndication is another mechanism used to manage the risks associated with early-stage deals. Investee firms in industries that have lower investment requirements or shorter gestation periods and those located in regions with a mature entrepreneurial ecosystems are more likely to attract early-stage investments. JEL Classification: G24, L26, D81

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“…For cross-border investments, syndication mainly serves the purpose of compensating for FVCFs' limited local networks. The social capital of FVCFs is mainly in the form of their international business networks [17], while investments in nascent ventures warrant a deep understanding of specific local conditions [19,56]. This gap is effectively filled by joint syndicates of domestic VCs and FVCFs.…”

Section: Vc Syndication-human and Social Capitalmentioning

confidence: 99%

Foreign Venture Capital Firms in a Cross-Border Context: Empirical Insights from India

Joshi

Chandrashekar²,

Brem

et al. 2019

Sustainability

Self Cite

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Syndication or co-investment is a potent way of pooling resources among peer Venture Capital (VC) firms. This is even more vital for Foreign VC firms (FVCFs) when investing in destinations that are geographically distant from their countries of origin. Although FVCFs are relatively abundantly endowed in terms of financial capital, they are distinctly disadvantaged in terms of their social capital when investing in geographies that are distinctly different in terms of their institutions, norms, and culture from their own. One of the ways in which FVCFs overcome this impediment is by investing in human resources that serve as a bridge between their financial and social capital. Accordingly, the primary aim of this study is to investigate the relationship between the resources of FVCFs and their syndication intensity. Using the technique of logistic regression, we arrive at several interesting findings. FVCFs with a greater proportion of investment executives with prior founding experience in India and those with lower proportions of professionals of Indian origin demonstrate lower syndication intensity. Similarly, the syndication intensity diminishes with the increase in size of the investing team. FVCFs with greater fund size demonstrate a lower need for syndication. Greater endowment of social capital as proxied by the age of the VC firm is seen to enhance the syndication intensity.

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Information Asymmetry Risks in Venture Capital (VC) Investments: Strategies of Transnational VC Firms in India

Cited by 6 publications

References 47 publications

Impact investing and sustainable market transformations: The role of venture capital funds

Impact investing and sustainable market transformations: The role of venture capital funds

Antecedents of Stage-wise Investment Preferences of Venture Capital and Private Equity Firms in India: An Empirical Exploration

Foreign Venture Capital Firms in a Cross-Border Context: Empirical Insights from India

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