José Martí

Financing Entrepreneurial Ventures in Europe: The Vico Dataset

The VICO project collected a database on young high-tech entrepreneurial companies operating in seven European countries (Belgium, Finland, France, Germany, Italy, Spain, and the United Kingdom). The objective of the data collection process was to build a data infrastructure to conduct an extensive study about the venture capital (VC) activity in high-tech sectors in Europe. The dataset includes two strata of companies: the first is a sample of VC-backed companies and the second a control group of non-VC backed (but potentially investable) companies. Data were collected by local teams from each country (using a variety of commercial and proprietary sources) and checked for reliability and consistency by a centralized data collection unit. The dataset consists of 8,370 companies, 759 of which VC-backed, and 1,125 VC investors. Detailed information was collected for each firm, investor, and investment, including accounting data, patenting data, and investor type and experience.

An Integrative Approach to the Determinants of Private Equity Fundraising

This paper builds on previous papers about private equity fundraising in two ways. Firstly, a micro and macroeconomic theoretical base is developed to support the empirical model proposed. Secondly, new explanatory variables that are related to the private equity process itself are added, thus completing the set of variables, which were basically macroeconomic and environment-related variables, introduced in previous papers. Evidence is found of the positive and significant effect of lagged aggregated investments and divestments on new funds raised, together with gross domestic product growth and the evolution of gross domestic savings.

Impact of funding and value added on Spanish venture capital-backed firms

This paper contributes to the literature on the effect of venture capital (VC) on the economic development of areas in which those specialized investors are active. The work focuses on the separate consideration of two effects that are supposed to explain the superior performance of a large sample of Spanish VC-backed firms, namely funding and value-added services provided by VC managers to their investee firms. The results show that funding is significant regardless of the stage of development of the investee firm. The value added, however, is only significant for the subsample of firms at the expansion stage.

Is the Spanish public sector effective in backing venture capital

Publisher Summary This chapter analyzes the role of private versus public venture capital (VC). The study is based on a highly representative sample of investments made in Spain, which makes this study interesting as Spain is a country where public sector funding played a principal role in the 1980s, sharing this role with private-sector investors since the early 1990s. The role played by venture capitalists in investment firms is thought to be important, as they are specialized financial intermediaries that provide a number of non-financial inputs along with their financial contribution. Firms backed with public funds are expected to grow at a lower rate since such funds are more oriented to social aims and regional development of depressed areas. Focusing on employment growth and using a sample of venture-backed Spanish firms, results show that only private VC has a significant impact on this variable. This chapter also studies whether this result could be related simply to geographical location, since the bulk of public funds are invested in underdeveloped areas that lack the appropriate networks to foster growth. Results show that while the positive impact of private funds is significant both in developed and underdeveloped areas, this is not the case for public funds. This questions the role played by Spanish public VC and points to the importance of the managerial support that is inherent in private venture capital. The implications of these results for policy makers lead to the adopting of alternative management strategies, such as assigning the allocation of public money to experienced private management teams rather than creating management structures that are neither independent in their activity nor experienced in venture capital investing.

From Venture Capital to Private Equity: The Spanish Experience

This article analyzes the evolution of the Spanish venture capital and private equity markets during the last 16 years, making at the same time a comparison with that experienced by the European markets. The aim of the article is to identify some key ideas that could explain the shift in the investment focus from the original concept of venture capital to the wider approach of private equity. Evidence of a shift towards mature companies is found, the difficulties in the exit processes of early-stage investments being the main constraint on real venture capital activity.

A Beacon in the Night: Government Certification of SMEs Towards Banks

Policymakers around the world have created several schemes to support financially-constrained SMEs. However, whether these mechanisms improve the access to external sources of finance or on the contrary crowd out private players remains a relevant question. In this paper we study the effectiveness of a recent form of government support, called participative loan, in improving recipient SMEs’ access to external financial debt. Relying on the literature about the certification effect, we develop hypotheses on the conditions under which the improvement is stronger. The empirical analysis is based on a sample of 488 Spanish SMEs that received participative loans from a Spanish government agency and a control group of 719 matched twins. We show that the former register significantly higher external financial debt (31.5%). The effect is stronger for smaller firms, or for those operating in high-technology sectors, which suffer more acutely from information asymmetries, and negligible for firms that already received support from another government-supported institution. After ruling out alternative explanations, we interpret this result as a positive evidence of government certification of SMEs towards banks.

Productivity growth in Spanish venture-backed firms

This chapter presents an innovative proposal to analyze the economic impact of venture capital on investee companies to address the issue of causality. We test whether productivity growth rates are better in venture-backed companies than in comparable non-venture-backed ones for a sample of 518 Spanish companies. This approach is superior to the isolated analysis of employment or sales growth since venture-backed companies would benefit from a flow of funds that the non-venture-backed would not obtain. Our findings show that labor productivity gains are statistically higher in the venture group for industry, trade and services sectors. Regarding capital productivity growth, rates are statistically significant in all sectors except for raw materials.

Self-regulation in European venture capital and private equity markets

This paper proposes a conceptual framework based on both environmental and industrial factors that could explain, in aggregated terms, capital flows within venture capital and private equity markets. The interaction between supply and demand is directly affected by three conditions: the size of the domestic market, the accessibility of a stock market for growing companies, and the entrepreneurial environment. Evidence is found for the significant impact of all three conditions on the aggregated commitments to venture capital and private equity organisations in a panel of 16 European countries. Prior to its inclusion in our model, we find evidence of the impact that several instruments related to the entrepreneurial environment exert on investments.

Are Firms Accessing Venture Funding More Financially Constrained? New Evidence from Capital Structure Adjustments

We analyze whether firms that receive venture capital (VC) at a later date face more financial constraints than a one-by-one matched sample of firms that did not receive VC funding (control group). The aim is to check whether their financial flexibility explains why they decide to seek external equity funding. In contrast with other papers, which focus on the sensitivity of investments to cash flow, we study this issue by applying a dynamic model to analyze the speed of adjustment to their target debt levels prior to receiving the first VC investment. We analyze a representative sample of 237 Spanish unlisted firms that received VC between 1995 and 2007 and its corresponding control group. We find that firms that receive VC funding show a significantly lower speed of adjustment than their matched peers before the initial VC round. It seems that the former are more concerned about funding the required investments than about adjusting the firms debt ratio to a target level. Our results confirm the role of VC in filling the equity gap in constrained unlisted firms. From a capital structure perspective, VC may become a tool for these companies to balance their capital structure in a growth process.

Socioemotional Wealth, Generations and Venture Capital Involvement in Family-Controlled Businesses

In this paper we analyze how the will to protect socioemotional wealth affects venture capital (VC) involvement in family-controlled businesses (FCBs). We find that first generation FCBs receiving VC show significantly lower productivity growth than other investees prior to the initial VC investment. We argue that the higher reluctance to lose control in first generation FCBs explains why only those that are not performing well are willing to accept an external investor as new shareholder. We also find, however, that the impact of VC financing on productivity growth is higher in first generation FCBs than in other investees. Since managers’ entrepreneurial orientation decreases over time, the effect of VC involvement is more limited in second or following generation FCBs.