Is the venture capital market liquid? Evidence from India

Dominic, J. Brewer; Gopalaswamy, Arun Kumar

doi:10.1016/j.gfj.2019.04.002

Cited by 5 publications

(5 citation statements)

References 35 publications

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“…This result points to the earlier VC studies, which discuss the liquidity of the VC market. Most of the exits occur within 2-3 years of investment, and once it crosses 5-6 years, the probability of staying invested is almost 70% in the Indian VC market (Dominic and Gopalaswamy 2019). The study pointed out that, if the exit did not happen within the initial few years, there was almost a 70% probability that it would not happen in the near future, indicating that the investment was becoming illiquid.…”

Section: Holding Period and Return Multiplementioning

confidence: 96%

Dynamics of Venture Capital and Private Equity Investments in India: An Empirical Analysis

Dominic,

Joseph

2023

JRFM

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In this study, we explore the inter-dynamics among holding periods, return multiples, fund types, and exit routes of different VC and PE investments in the emerging economy context of India. We employ data spanning from January 2004 to March 2021, and our results indicate that there is a negative association between the holding period and return. The results also indicate that the average holding periods for India-dedicated and foreign funds are not significantly different. Furthermore, the results show that India-dedicated funds outperform foreign funds significantly in generating returns. Finally, the findings suggest that all exit routes can potentially yield similar results, contrary to the prevailing belief that certain exit routes guarantee superior returns. These findings provide useful insights for a spectrum of stakeholders, including entrepreneurs, practitioners, investors, financial analysts, and policymakers.

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Section: Holding Period and Return Multiplementioning

confidence: 96%

Dynamics of Venture Capital and Private Equity Investments in India: An Empirical Analysis

Dominic,

Joseph

2023

JRFM

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“…Other investments popularly called "lemons" find it extremely difficult even to have an exit opportunity or they exit with poor returns or even losses. The Indian VC exit market is not well established and lacks liquidity (Dominic and Gopalaswamy, 2019). This may result in many investments being locked up and the value getting eroded in the process.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…This also points to the importance of a timely exit when the IF valuation is high. The timely exit is, in turn, dependent on market liquidity, which is very scarce in the Indian VC exit market (Dominic and Gopalaswamy, 2019).…”

Section: Modelling the Relationship Between The Variables Of Interestmentioning

confidence: 99%

“…It points to the earlier VC studies, which discuss the liquidity of the VC market. Most of the exits occur within 2-3 years of investment, and once it crosses 5-6 years, the probability of staying invested is almost 70% in the Indian VC market (Dominic and Gopalaswamy, 2019). However, some firms may stay invested not because of the illiquidity, but to harness the future potential of promising ventures.…”

Section: Modelling the Relationship Between The Variables Of Interestmentioning

confidence: 99%

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Decoding VC exit returns: the Indian experience

Dominic

Gopalaswamy

2021

JIBR

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Purpose This paper aims to analyse the effect of the investment duration, the overall market condition and the industry to which the investee firm belongs on exit returns realised by venture capital (VC) firms invested in Indian market, using hierarchical regression models. Design/methodology/approach The study examines the relationship that exist among the variables of interest by analysing all the 210 exits that happened in the Indian VC market over the period 2004–2017 by using analytical tools such as moving averages, hierarchical regressions and pooled ordinary least squares regression. Findings Exit return has an approximate U-shaped relationship with investment duration, and the turning point in the convex relationship happens around seven to eight years after investment. Returns are weakly related to the market condition, discarding the market timing hypothesis. Relationship patterns are found to be generally unvarying during the time period under study. Research limitations/implications The results indicate VC funds in the Indian market tend to exit in a brief time span and gain substantial returns from the immediate exits beyond, which returns start dipping. This points to the illiquidity of the Indian VC market wherein the exits from “lemons” are quite tricky, which make them remain invested for longer durations and eroding the value substantially in the process. VC funds may make rational investment/exit decisions in the Indian market capitalising this knowledge. Originality/value This study empirically connects the value creating factors in a VC process to the established theories about the early stage investments and analyse the applicability and relevance of those theories in a market with high growth potential like India.

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“…A study by Bertoni and Groh (2014) concluded that the probability of exiting via strategic sales is positively correlated to the additional set of strategic sales opportunities brought in by foreign investors (Yang, 2012). In addition the investment duration and the time left for VC fund to liquidate the fund and give the money back to investors also affect their choice of exit route (Dominic & Gopalaswamy, 2019).…”

Section: Hypotheses Developmentmentioning

confidence: 99%

Untitled

2020

Asian Economic and Financial Review

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This study investigated the patterns adopted by VCs in their choice of exit routes The relationship between industry, transaction, and fund level variables with type of exit route chosen was also analyzed. Exit patterns were coded based on industry, type of exit and nature of fund. The relationship between industry, transaction, fund level variables and the type of exit route chosen was analyzed based on 221 transactions that occurred in India during the period from 2004 to 2017. High levels of similarity in the exit patterns of the service and manufacturing industries were observed. The myth that IPO from a service industry generates higher value does not seem to hold true. The choice of exit route depends on the type of exit viz. partial/complete exit. The probability of market exit increased by almost 2.8 times when the exit was partial. The fact that there is similarity in exit patterns of both foreign origin and Indian funds is beneficial for entrepreneurs paving way for strategy changes. Secondly the nondifferential impact of industry on exit route choice provides further options for both the entrepreneurs and investors. Contribution/ Originality: This study contributes to the existing scant literature on VC exits that specifically focuses on exits by early stage investors. This study provides the first evidence for the Indian VC market that the choice of exit route depends on the type of exit viz. partial/complete exit.

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Is the venture capital market liquid? Evidence from India

Cited by 5 publications

References 35 publications

Dynamics of Venture Capital and Private Equity Investments in India: An Empirical Analysis

Dynamics of Venture Capital and Private Equity Investments in India: An Empirical Analysis

Decoding VC exit returns: the Indian experience

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