Sofia Johan

Venture Capital Investment Duration

This paper examines cross‐country evidence on the duration of venture capital (VC) investment. We formulate a theory of VC investment duration based on the idea that venture capitalists exit when the expected marginal cost of maintaining the investment is greater than the expected marginal benefit, and thereby relate VC investment duration to entrepreneurial firm characteristics, investor characteristics, deal characteristics, and institutional and market conditions. VC investment duration data in Canada and the United States lend strong support to the theoretical predictions developed herein.

Information Asymmetries, Agency Costs and Venture Capital Exit Outcomes

This paper provides theory and evidence relating information asymmetries and agency costs to exit outcomes in venture capital-backed entrepreneurial firms. Where venture capitalists are able to better mitigate information asymmetries and agency costs faced by the new owners of the firm, they will be more likely to have a successful exit outcome. Information asymmetries and agency costs will vary depending on the characteristics of the venture capitalist and entrepreneurial firm, as well as the structure of the financing arrangement. This paper introduces a new dataset comprising all venture capital exits in Canada for the years 1991 to 2004. The data provide strong support for the conjecture that the ability to mitigate information asymmetries and agency costs is a central factor in influencing exit outcomes.

Is it the Law or the Lawyers? Investment Covenants around the World*

This paper introduces a new dataset from 50 private investment funds from 17 countries around the world. We analyse the frequency of use of investment covenants imposed by institutional investors governing the activities of private investment fund managers in areas pertaining to investment decisions, investment powers, types of investments, fund operations and limitations on liability. While the data indicate a role for country legality in affecting the frequency of use of fund covenants, the data further indicate that the presence of legally trained managers has a more pronounced role in affecting the use of covenants. As private equity and venture capital investment increases across Europe and elsewhere, our results indicate that legal practice factors will matter more than the legal setting for the establishment of covenants governing new funds.

The Economic Impact of Entrepreneurship: Comparing International Datasets

Research Question/Issue: What is the impact of entrepreneurship on GDP/capita, unemployment, exports/GDP, and patents per population across countries? Is the impact of entrepreneurship mitigated by legal and cultural differences across countries? Do different international datasets provide different answers to these questions? We empirically compare the impact of entrepreneurship on GDP/capita, unemployment, exports/GDP, and patents per population across countries by examining three datasets from the World Bank, the OECD, and Compendia. Research Findings/Insights: Based on a comprehensive sample of all available countries and years, with the World Bank data being the most comprehensive, we find entrepreneurship has a significantly positive impact on GDP/capita, exports/GDP, and patents per population, and a negative impact on unemployment. Inferences from the Compendia data are very consistent. By contrast, inferences from the OECD data are not supportive of any of these propositions. Theoretical/Academic Implications: Our findings point to institutional and cultural impediments to the effectiveness of entrepreneurship. Most notably, the impact of entrepreneurship is significantly mitigated by excessively strong creditor rights that limit entrepreneurial risk taking. Furthermore, the data indicate cultural attitudes that are associated with low risk taking limit the effectiveness of entrepreneurship. By contrast, the impact of entrepreneurship on exports/GDP does not appear to be directly tied to costs of exporting, which is perhaps best explained by the new economy goods and services created by entrepreneurs that depend less on such costs. For some subsets of the data we find evidence consistent with the view that top tier venture capital funds enhance the impact of entrepreneurship on GDP/capita. Finally, our results show how different definitions of new business entry matter for empirical analysis of entrepreneurship across countries. Practitioner/Policy Implications: The data highlight the importance of access to finance without downside costs so that entrepreneurs are encouraged to take risk. Further, the data highlight institutional differences in risk attitudes more generally inhibit risk taking and thereby limit the effectiveness of entrepreneurship. As well, the data highlight a central role for careful measurement of entrepreneurial activities and for inclusion of as many countries and years as possible in order to effectively analyze the impact of entrepreneurship.

The Differential Impact of the Internet on Spurring Regional Entrepreneurship

This paper studies the effect of the introduction of government–provided Internet technology to rural communities (Internet communities) on regional entrepreneurship. Entrepreneurship increases among larger Internet communities, as the Internet spurs entrepreneurial activities by enabling agglomeration across areas that have a preexisting cluster of real entrepreneurial activities. There is, however, a decrease in entrepreneurship among smaller and more geographically remote Internet communities, as the Internet facilitates the consumption of items and services not produced within such smaller communities. Overall, the key finding is that virtual entrepreneurial clusters are not independent of real entrepreneurial clusters.

Venture's Economic Impact in Australia

Abstract We empirically compare the contributions of venture capital (VC) and private equity backed firms, including those backed by government subsidized innovation investment funds (IIFs), in the Australian economy by analyzing employment, R&D, patents, time to IPO, and market capitalization from market inception to August 2012. Overall, the data highlight a central role for VC and IIF investment in facilitating R&D, innovation, and economic growth. Our IIF findings highlight the success of government sponsorship of VC under the Australian program design, which is sharply in contrast with the lack of success of government venture programs in other countries.

The Changing Latitude: Labor-Sponsored Venture Capital Corporations in Canada: The Changing Latitude: LSVCCs in Canada

Manuscript Type. Empirical. Research Question/Issue. This paper seeks to understand the role corporate governance and government policy plays in the portfolio choices of the labor�?sponsored venture capital corporations (LSVCCs) in Canada. We investigate whether or not the change in tax policy announced in Ontario (2005) had an impact on the investment behavior of Ontario LSVCCs and whether the unique corporate governance structure of LSVCCs enables them to focus on their investment mandate subsequent to this announcement. Research Findings/Insights. Our findings suggest that LSVCCs in Ontario are more likely to include public companies in their fund portfolios after the announcement of the change in tax policy. We find that after 2005, LSVCCs have increased their number of investments in public companies by 59.13 percent and in turn decreased their number of investments in private companies by 13.17 percent. On the other hand, we find no significant changes in investment behavior for LSVCCs in other provinces. In terms of the percentage of total investment in public companies, we find that the LSVCCs in Ontario are more likely to increase their total investment in public companies by 50 percent and to decrease their investment in the short term by 46.43 percent. LSVCCs in other provinces, however, are reducing their percentage of investment in public companies by 58.33 percent and increasing their total investment in private entrepreneurial firms by 38.33 percent in the same period. Theoretical/Academic Implications. With a hand�?collected proprietary dataset, we are able to augment existing studies on the unique structure of LSVCCs in Canada with empirical evidence on the style drift due to the changes in government tax policy. We compare and contrast the investment behavior of LSVCCs before and after the tax policy change in Ontario as well as the investment behavior of LSVCCs in other provinces. We hypothesize that as a result of the elimination of the tax credits, the removal of certain investment restrictions, and weaker corporate governance, LSVCCs have drifted from their original mandate to invest in high�?risk venture companies to investing in less risky public companies. Such style drift may be a result of LSVCCs preparing for potential wealth transfer or liquidation by retail investors. More importantly, we find the unique corporate governance structure of LSVCCs may facilitate this drift from their original purpose of providing venture capital to small and medium�?sized entrepreneurial (SME) firms. Practitioner/Policy Implications. We highlight that the style drift of LSVCCs in Ontario may result in such funds behaving more like other types of mutual funds and the deviation from their original mandate to provide venture capital may not only prove detrimental to entrepreneurial investee firms seeking such capital, but also negate any diversification benefits sought by fund investors. Also, such deviation may not necessarily justify the higher management expense ratio charged by LSVCCs.

Determinants of Sovereign Wealth Fund Investment in Private Equity

This paper examines investment patterns of 50 sovereign wealth funds (SWFs) in nations around the world. We study investment by SWFs in 903 public and private firms over the period 1984-2009. As expected, we observe SWFs investments are more often in private firms when the market returns of target nations are negatively correlated to the market returns of the SWF nations. But counter to expectations, the data indicate that SWFs are more likely to invest in private firms of target nations with weaker legal conditions, and when the legal differences between the SWF country and the target country are more pronounced. This evidence is consistent with strategic rationales for investment and potential corporate governance conflicts.

Legality and venture capital fund manager compensation

This paper introduces a new dataset from 50 venture capital and private equity funds from 17 countries in Africa, North and South America, Europe and Australasia. We analyse compensation in regard to fixed management fees (as a percentage of fund size), performance fees (the carried interest percentage), clawbacks (reduced fees for poor performance), and cash versus share distributions (payment to institutional investors). We control for a variety of factors including market conditions, institutional investor and fund manager characteristics. The data indicate that legal conditions by far have the most robust statistically and economically significant effect on compensation across countries: fixed fees are higher and performance fees are lower in countries with poor legal conditions; clawbacks are more likely in countries with poor legal conditions; and cash-only distributions are much more likely to be mandated among offshore funds.

Technology Parks and Entrepreneurial Outcomes around the World

Purpose – The purpose of this paper is to study factors that affect the success of technology parks in terms of fostering entrepreneurial firm formation, growth, and financing. Design/methodology/approach – Based on a new international dataset of technology parks (tech parks) from 13 countries (eight developing countries and five developed countries), the paper relates the success of technology transfer to the legal environment within which the tech park operates, as well as the characteristics of the tenants in the tech park and the services provided by the tech park. Findings – The data indicate entrepreneurial success is more likely to be facilitated when there is better legal protection offered to companies in the jurisdiction within which the tech park is located, when there is a greater presence of foreign university- and government-affiliated companies in tech parks, and a smaller presence of foreign private companies in tech parks, particularly foreign subsidiaries. The data further indicate entre...