Carolin Bock

The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment†

Our study analyzes the effect of the capital gains tax on the individual investment decisions of venture capitalists. By doing so, we are able to study the decisions for a sample of 61,558 funding rounds in 32 countries from 2000 to 2012. Our results support the predictions of the theoretical model that higher capital gains tax rates are associated with fewer start‐ups financed and a lower probability of receiving follow‐up funding. However, the results concerning the effect on the probability of success of start‐ups show that a higher tax burden is associated with a higher probability of eventual start‐up success.

Financial covenants and their restrictiveness in European LBOs – an assessment in the aftermath of the financial crisis

Financial covenants play a crucial role in mitigating agency conflicts in loan agreements of high leverage. In a European-wide qualitative survey among private equity experts, we assessed the impact of the financial crisis on financial covenants in leveraged buyout transactions. We concentrated on the factors that drive covenant restrictiveness by measuring the change of headroom as the most influential factor determining restrictiveness. The survey of 25 lead arrangers and private equity sponsors indicates that financial covenants mainly serve the purpose of managing the risk of the transactions and that leverage, interest cover, cash flow cover, and capex constitute the most important covenants. Their restrictiveness increased heavily during the financial crisis. The liquidity of debt markets, the deal pressure for mandated lead arrangers and the private equity sponsor’s history of covenant breaches represent the drivers of highest importance for covenant restrictiveness.

Following the Crowd-Does Crowdfunding Affect Venture Capitalists’ Selection of Entrepreneurial Ventures?: JOURNAL OF SMALL BUSINESS MANAGEMENT

Given the increasing popularity of crowdfunding as a new means to finance entrepreneurial ventures, we assess whether and how crowdfunding campaign‐specific signals that affect campaign success influence venture capitalists’ selection decisions in ventures’ follow‐up funding process. Our study relies on cross‐referencing a proprietary data set of 56,000 crowdfunding campaigns that ran on Kickstarter between 2009 and 2016 with 100,000 investments in the same period from the Crunchbase data set. Drawing on signaling theory and the microfinance literature, our empirical findings reveal that a successful crowdfunding campaign leads to a higher likelihood to receive follow‐up venture capital (VC) financing, and that there exists an inverted U‐shaped relationship between the funding‐ratio and the probability to receive VC funding. Further, we find statistical evidence that an endorsement by the platform provider has a likewise positive impact on the receipt of VC. Contrary to our expectations, word‐of‐mouth volume seems to be a negligible factor when it comes to follow‐up VC financing. Our results support the view that crowdfunding signals are factored into the VC’s funding decision in order to evaluate the potential of entrepreneurial ventures.

ARE PUBLIC FINANCING SCHEMES BENEFICIAL FOR UNIVERSITY SPIN-OFFS AND THE TECHNOLOGY TRANSFER OF INNOVATIONS?

We investigate the effectiveness of public financing programmes for university spin-offs (USOs) in their seed stage. These ventures often identify groundbreaking innovations which are not commercialised due to financing problems. USOs show characteristics which expose them even more to the typical financing gap ventures face and for which public programmes aim to provide relief. We test on a sample of 127 German USOs whether these ventures’ characteristics increase the selection for public programmes and whether these positively affect the ventures’ development. The results indicate that only certain characteristics of USOs are decisive for receiving public support. However, the supported spin-offs have an increased likelihood of facing financial difficulties after the phase of support and do not have a higher investment readiness for finding an external investor.

Why do Some Venture Capitalists Cash Out While Others Retain their Stakes? -- How Fund Dynamics Influence Venture Capital Exit Decisions

Although venture capital (VC) exits have been studied for over 20 years, major drivers are still in question. We examine the determinants of exit timing in initial public offerings (IPOs). The results from a proprietary dataset of 292 U.S. VC-backed IPOs from 1991 to 2008 imply that VC firm characteristics and fund dynamics have a significant influence on the exit extent and may not always be in line with limited partners’ interests. In particular, first-time funds keep their shares longer after an IPO, whereas funds satisfied with current fund performance cash out soon after the end of the lockup period.