The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms

The different roles played by venture capital and private equity investors on the investment... Venture capital (VC) and private equity (PE) investors play different roles in their portfolio companies. We argue that this will translate in a recognizable difference in the investment sensitivity to cash flows of portfolio companies and its evolution after the first investment round. We hypothesise that VC, thanks to its ability in overcoming asymmetries in information, will entail a reduction in the financial constraints which hampered the growth of investee firms. We predict, instead, a greater dependency of investments to cash flow for PE-backed companies, driven by the renewed interest for growth of their management combined with higher leverage. We find evidence confirming our hypotheses on a large panel of Spanish unlisted firms in low and medium technology sectors, where both VC and PE firms are active. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms

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Publisher
Springer Journals
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC.
Subject
Economics / Management Science; Management/Business for Professionals; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-011-9384-x
Publisher site
See Article on Publisher Site

Abstract

Venture capital (VC) and private equity (PE) investors play different roles in their portfolio companies. We argue that this will translate in a recognizable difference in the investment sensitivity to cash flows of portfolio companies and its evolution after the first investment round. We hypothesise that VC, thanks to its ability in overcoming asymmetries in information, will entail a reduction in the financial constraints which hampered the growth of investee firms. We predict, instead, a greater dependency of investments to cash flow for PE-backed companies, driven by the renewed interest for growth of their management combined with higher leverage. We find evidence confirming our hypotheses on a large panel of Spanish unlisted firms in low and medium technology sectors, where both VC and PE firms are active.

Journal

Small Business EconomicsSpringer Journals

Published: Oct 30, 2011

References

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