Sophie Manigart

Venture capitalist governance and value added in four countries

Research has identified the means by which venture capitalists (VCs) in the United States add value to their portfolio firms beyond money. The venture capital industry has expanded into other nations, and this study explores the relations of venture capitalists with their portfolio firms in the three largest European venture capital markets –- the United Kingdom, France and the Netherlands. Roles for VCs are categorized as strategic (e.g., providing business advice), interpersonal (e.g., mentoring the CEO), and networking (providing links to other resources). Utilizing agency and organization theory perspectives, this study analyzes governance and decision making issues from the viewpoints of the VCs. Perceived risks and uncertainty are hypothesized to increase the level of interaction between CEO and VC, and to increase the value added by such interaction. Interviews and surveys of venture capitalists and the CEOs of their portfolio firms were conducted in the US in 1987-1988. In 1982, a similar questionnaire was administered to VCs in the three European countries. Both similarities and differences were found among the four countries. In the US and the UK, for example, VCs interact more frequently with their portfolio firms, to monitor and assist them, than do those in France and the Netherlands. However, in all four countries VCs rate the greatest value added as strategic, and the least as networking. The situations in which VCs are likely to provide assistance are also examined. Further research is needed on the interaction between formal governance and more informal oversight.

Determinants of required return in venture capital investments: a five-country study

Using two complementary theoretical perspectives, we develop hypotheses regarding the determinants of the return required by venture capitalists and test them on a sample of over 200 venture capital companies (VCCs) located in five countries. Consistent with resource based theory, we find that early stage specialists require a significantly higher return than other VCCs when investing in later stage ventures. Consistent with financial theory, we find that acquisition /buyout specialists require a significantly lower return than other VCCs when investing in expansion companies. Furthermore, in comparison to specialists, highly stage-diversified VCCs require a significantly higher return for early stage investments. Independent VCCs require a higher rate of return than captive or public VCCs. In general, higher required returns are associated with VCCs providing more intensity of involvement, having shorter expected hold-ing period of the investment, and being located in the US or UK (in comparison to those in France, Belgium, and the Netherlands).

Institutional Influences on the Worldwide Expansion of Venture Capital

The venture capital (VC) industry started in the United States and then spread worldwide. As it spread into other countries, there was a conscious attempt to copy industry practice from the U.S. However, venture capitalists in other countries are subject to different institutional forces that can impact their behavior. This article uses an institutional perspective to develop testable propositions on the impact of various institutions on venture capitalists’ behavior. The article concludes with a discussion of the implications of an institutional theory perspective for VC research and public policy.

Venture capitalists' decision to syndicate

Financial theory, access to deal flow, selection, and monitoring skills are used to explain syndication in venture capital firms in six European countries. In contrast with U.S. findings, portfolio management motives are more important for syndication than individual deal management motives. Risk sharing, portfolio diversification, and access to larger deals are more important than selection and monitoring of deals. This holds for later stage and for early stage investors. Value adding is a stronger motive for syndication for early stage investors than for later stage investors, however. Nonlead investors join syndicates for the selection and value–adding skills of the syndicate partners.

The survival of venture capital backed companies

This study addresses the survival of Belgian venture capital (VC) backed companies, compared to companies that did not receive VC. Survival analysis techniques are used to analyse the survival of a sample of 565 Belgian VC backed companies and 565 comparable non-VC backed companies. A distinction between different types of venture capitalists is made. Contrary to commom wisdom, VC backed companies do not have a higher probability of surviving than comparable non-VC backed companies. Companies, backed by the two oldest government venture capitalists, however, have a higher survival rate and companies, backed by other government venture capitalists have a lower survival rate and a higher probability of going bankrupt. Our results confirm previous studies in that it is shown that receiving VC from the right backer is perhaps more important than receiving VC per se.

Venture capitalists' appraisal of investment projects: an empirical European study

The Investment appraisal and valuation process of venture capitalists includes Information gathering, the assessment of risk and required return, and the choice of a valuation method. This process is empirically studied in the United Kingdom, the Netherlands, Belgium, and France. The Importance of different information sources is equal in the four countries, except that the French venture capitalists Place more emphasis on personal references and the track record of the entrepreneur. The required return is lowest in the Netherlands and Belgium for every development stage of a company, and highest in the UK. The most widely used valuation method in the UK is the multiplication of past or future earnings with some price-earnings ratio. In the Netherlands and Belgium it is the discounting of future cash flows, and in France it is the book value of the net worth.

Private Equity Syndication: Agency Costs, Reputation and Collaboration

Syndicates are a form of inter-firm alliance in which two or more private equity firms invest together in an investee firm and share a joint pay-off, and are an enduring feature of the leveraged buyout (LBO) and private equity industry. This study examines the relationship between syndication and agency costs at the investor-investee level, and the extent to which the reputation and the network position of the lead investor mediate this relationship. We examine this relationship using a sample of 1,122 buyout investments by 80 private equity companies in the UK between 1993 and 2006. Our findings show that where agency costs are highest, and hence ex-post monitoring by the lead investor is more important, syndication is less likely to occur. The negative relationship between agency costs and syndication, however, is alleviated by the reputation and network position of the lead investor firm.

Financing and Investment Interdependencies in Unquoted Belgian Compagnies: The Role of Venture Capital

There is ample empirical evidence that investments in (public) companies are correlated with cash flow. This may either be explained as evidence of financing constraints (Fazzari, Hubbard and Petersen, 1988), as excessive conservatism by managers, restraining investments to the internally generated cash flow (Kaplan and Zingales, 2000). We test the investment-cash flow sensitivity in unquoted Belgian companies with a modified sales accelerator model, using unbalanced panel data and GMM techniques. We show that investments in tangible fixed assets are positively related to cash flow. Contrary to our expectations, this sensitivity is not reduced, but it increases, when companies receive venture capital. We interpret the results as evidence of the presence of financing constraints and underinvestment problems in unquoted companies. Venture capital intermediaries are not able to eliminate financing constraints in Belgian unquoted companies.

Growth patterns of the European venture capital industry

Abstract Although the European venture capital industry has become nearly as important as its American counterpart, little research has been done to describe its nature and importance. This study gives in the first place an overview of the importance of the venture capital industry in the major European countries. Thereafter, we look for funding and investment patterns in the different European countries. We hypothesize that there is a difference between countries in which the venture capital industry is just emerging, and those where the venture capital industry is since long established. The data are mainly, but not solely, taken from the yearly statistics of the European Venture Capital Association (EVCA) and cover the period 1984–1989. The characteristics we look at are: (1) the sources of the funds flowing into the industry, broken down with respect to investor type and geographical location of the investor; and (2) the investments, broken down with respect to investment stage (using the EVCA definitions of the different stages), geographical location, degree of syndication, and industrial sector of the investee companies. In Europe as a whole, the most important group of investors are the banks (28%), the pension funds (17%), and the insurance companies (12%). Banks dominate the Swiss industry (48%); corporate investors dominate the German, Swedish, and Portuguese industries, whereas these are nearly completely absent in Denmark (2%), Ireland (4%), and the United Kingdom (5%). Eighty percent of all venture capital funds are raised domestically, 7% in another European country, and the remaining 13% in a non-European country. Almost half of the European investments (44%) are made in the expansion stage; management buy-outs (MBOs) account for another 36%. Only 14% is invested in seed or start-up companies, much less than the 30% in the U.S. Half of the venture capital investments in the United Kingdom are buy-outs. The highest start-up investment activity takes place in Austria and Spain. On average, more than half (54%) of the invested amount in Europe is syndicated, but only 6% internationally, while 10% is invested internationally. We also search for similarities and dissimilarities in the characteristics of the sources of funds and of the investments. The hypothesis is that a growth pattern can be distinguished, determining the maturity of the venture capital industry in a particular country. The characteristics that we think would discriminate most among the different industry stages are the importance of government agencies, pension funds, and insurance companies (sources of funds); of start-up, later stages, or MBO investments; and the percentage of international and syndicated investments. Cluster analyses show that there is a growth pattern, but it is less clear than expected. Characteristics of mature industries are a bigger size, relative to the gross national product of the country, the presence of pension funds and insurance companies as investors in the industry, the syndication of the deals, and the absence of the government as an investor, in the 1980s, investments in management buy-outs are mainly done by the mature industries. No pattern can be distinguished for the investments in early or later stages. The major implication from this study is the fact that the European venture capital industry cannot be approached as a single, undifferentiated industry. Each country has its own structures, institutions, and policies, which make the venture capital industries in the different countries have unique characteristics. Moreover, the European venture capital industry has different characteristics than the American industry; this has to be taken into account when comparing both industries.

The impact of human and social capital on entrepreneurs’ knowledge of finance alternatives

Building upon prior research that demonstrates how the limited knowledge of finance alternatives of entrepreneurs may cause suboptimal finance decisions, this paper examines how entrepreneurs’ human and social capital influence their knowledge of finance alternatives. For this purpose, we use survey data from 103 Belgian start‐ups. Results demonstrate that entrepreneurs with a business education and entrepreneurs with experience in accountancy or finance have a broader knowledge of finance alternatives. Having a strong network in the financial community is further positively associated with the knowledge of finance alternatives. However, generic human capital, including higher education, industry experience, and management experience, is almost not related with the knowledge of finance alternatives.