Venture-Capital Exits in Canada and the United States

Cumming, Douglas J.; MacIntosh, Jeffrey G.

doi:10.2307/3650880

Cited by 154 publications

(85 citation statements)

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“…Pagano et al (1998) show that the ''larger companies are more likely to go public'', mostly because they face less direct (administrative) and indirect (underpricing) costs. Gompers (1995), Cumming and Macintosh (2003a) and Schwienbacher (2008b) have shown that, due to fixed costs, only companies above a threshold dimension should be expected to be exiting through a public offering. Ritter (1991) found a significant inverse relationship between underpricing and the age of the company in a public offering, which is consistent with Chemmanur and Fulghieri (1999) who showed that, in equilibrium, firms go public only when a sufficient amount of information about them has accumulated in the public domain.…”

Section: Trinomial Logistic Model and Variablesmentioning

confidence: 99%

“…8 Consistent with this observation, Masulis and Nahata (2009) found in the case of trade sales that the returns of the purchasing company are, on average, higher when the selling private equity fund is closer to maturity. Cumming and MacIntosh (2003a) conjecture that as the fund approaches its maturity, there may be portfolio companies that are not yet ready for a public offering or a strategic sale, which may make a secondary sale attractive, insofar as it can avoid having to request an extension on the life fund.…”

Section: Introductionmentioning

confidence: 99%

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What determines the exit decision for leveraged buyouts?

Jenkinson¹,

Sousa²

2015

Journal of Banking & Finance

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a b s t r a c tHow and when to exit portfolio company investments are critical choices facing private equity funds. In this paper we analyze 1022 European private equity exits, using information on fund and portfolio company characteristics, and on conditions in capital markets. For over 43% of the exits, private equity funds sold to each other and we analyze why such secondary buyouts have gained in popularity relative to IPOs and sales to corporate acquirers. We find that the exit route depends on various portfolio company characteristics, and that conditions in the debt and equity markets have a strong influence on exit choice. The existing literature has tended to portray the IPO is the ''preferred'' exit route. However, our analysis suggests this is mistaken: private equity funds take advantage of 'windows of opportunity', and the exit route that maximizes value varies with market conditions.

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Section: Trinomial Logistic Model and Variablesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

What determines the exit decision for leveraged buyouts?

Jenkinson¹,

Sousa²

2015

Journal of Banking & Finance

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“…Lerner (1994a) shows out in an empirical paper that venture-backed biotechnology firms in the USA go public when equity valuations are high and employ private financing when they are lower. Cumming and MacIntosh (2000) demonstrate empirically that the efficient pattern of exit depends on the quality of the firm, on the nature of its assets and on the duration of the VC investment. IPOs are most often used for the highest quality firms.…”

Section: Exitmentioning

confidence: 92%

What Do Economists Tell Us about Venture Capital Contracts?

Tykvová

2003

SSRN Journal

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Start-ups in innovative branches require a substantial amount of capital. Their founders may not have sufficient funds to finance the implementation of the ideas alone and might therefore look for outside financing. Additionally, new firms typically do not need only capital but also managerial advice. The banking sector does generally not want to take the extreme risks connected with young innovative firms on the one hand and, on the other hand, typically does not carry out advisory functions. High costs in combination with informal opacity are the reasons why small firms usually do not engage in public equity and debt underwriting, which leaves private capital as the most appropriate possibility. A special subgroup of private capital designed for young innovative firms is venture capital.The interactions between venture capitalists and their portfolio firms are characterized by high asymmetry of information, high risk, and uncertainty. The founder usually has only limited resources and her human capital is essential for the success of the project. Normally, there is no collateral available. Different kinds of agency problems are present in venture capital markets: moral hazard, adverse selection, hold-up problems, window dressing, etc. With the provision of capital, the VC firm takes over part of the risk and of the surplus from a project. This entails an incentive problem, since the founder may exercise less effort than if she had taken the whole profit on herself. Even if the effort of the founder is very high, a failure of the project may occur due to other circumstances. In such cases, the founder typically does not want to admit the failure and stop the project -as long as the venture capitalist finances it -which may lead to a continuation of loss-making projects and wasting of scarce resources. Additionally, the danger arises that the founder could squander or misuse the money she gets from the venture capitalist. The founder might invest in strategies and projects that have high personal returns but low expected monetary payoffs to the venture capitalist. If the founder participates in the profits but does not bear a large enough part of the losses, she might take too much risk.The relationship between a venture capitalist and an entrepreneur goes beyond the standard "principal -agent" framework. Venture capitalists' effort is essential for the success of the investment because the entrepreneur usually has neither enough business experience nor the necessary networks. Using its networks, a VC firm can help the company find appropriate staff, suppliers, customers, or other partners. Furthermore, the VC firm offers experience in managerial activities so that it may collaborate on the establishing of the optimal structure of the firm and participate in organizational, financial, strategic, and other decisions. It often assists in obtaining additional financing.Entrepreneurs and venture capitalists enter into contracts that influence their behavior and mitigate the agency costs. Typically, the contracts bet...

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“…The final step in the process is harvesting, when the investor makes an exit from the investment. Ideally, an exit is a return on the capital invested by a factor of ten or more (for an overview of exit types, see Cumming and MacIntosh, 2003).…”

Section: How Crowdfunding Handles Different Investment Stagesmentioning

confidence: 99%

The role of crowdfunding in entrepreneurial ventures: an analysis of recent trends in Sweden

Silver¹,

Berggren

Fili

2016

Investment Management and Financial Innovations

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This is the published version of a paper published in Investment Management and Financial Innovations. Citation for the original published paper (version of record):Silver, L., Berggren, B., Fili, A. (2016) The role of crowdfunding in entrepreneurial ventures: an analysis of recent trends in Sweden. The financing of entrepreneurial ventures has been at the forefront of academic debate as well as policy-making discussion for almost a century. In general, there seems to be an agreement that the risks associated with business startups are higher than for mature firms, hence, these ventures will have to pay a higher interest rate than more mature and large firms. In this paper the authors analyze the role of a relatively new form of financing for entrepreneurial ventures -crowdfunding -and how this form of financing is similar and different from traditional sources of finance. The authors are also presenting different forms and models of crowdfunding available on the market together with illustrations from the crowdfunding industry in Sweden. The analysis indicates that the positive effects with crowdfunding are numerous but that the size of the crowdfunding sector is relatively small in comparison with the banking and venture capital industry. Investment Management and Financial

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Venture-Capital Exits in Canada and the United States

Cited by 154 publications

References 0 publications

What determines the exit decision for leveraged buyouts?

What determines the exit decision for leveraged buyouts?

What Do Economists Tell Us about Venture Capital Contracts?

The role of crowdfunding in entrepreneurial ventures: an analysis of recent trends in Sweden

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