Vincenzo Capizzi

The returns of business angel investments and their major determinants

This paper aims to provide evidence on the performance of business angels’ investments, using a unique dataset covering a representative sample of the main actors of the Italian informal venture capital market. In particular, through an econometric analysis we investigate the returns on business angels’ investments and their major determinants, making reference to an original set of independent variables. Furthermore, while previous empirical studies have hypothesised linear relationships between the explanatory variables and the performance of informal venture capitalists’ investments, this work tests different functional forms, both linear and non-linear. The major results achieved through the empirical analysis are as follows: 1) the relationship between experience and IRR is U-shaped and significant; 2) the widely-accepted expectation that investments with a short holding period earn a lower IRR is confirmed by quantitative data; 3) an original explanatory variable – rejection rate – is put into the model and its impact on business angels’ performance is positive, non-linear and significant; 4) the final overall econometric model, shows relevant explanatory power, with an R-squared close to 35%. Finally, the outcomes of the empirical analysis performed in this study allow the identification of new and concrete insights into possible public policy interventions aimed at stimulating the informal venture capital industry and, therefore, entrepreneurship inside the economic system.

The Effects of Private Equity Investors on the Governance of Companies

An increasingly important external control mechanism affecting the governance of young and fast growing companies worldwide is the emergence of institutional and private equity investors, as equity owners. Institutional investors have the potential to influence management’s activities directly through their ownership, and indirectly by trading their shares (Gillan and Starks, 2003). As a result, companies backed by private equity investors represent a fruitful environment to investigate the use and efficiency of a multitude of control mechanisms. However the surge over the last 30 years in investment activity by private equity investors at large, has given rise to an increased specialization that nowadays profoundly distinguishes business angels from venture capitalists and buyout specialists. While these investors share common traits such as a value maximization approach, risk-return informed decisions, and a finite investment horizon, the monitoring and control mechanisms associated with their stage focus and consequent risk-return profile are substantially different. In this paper we aim at presenting an up-to-date review of the main theoretical contributions and empirical results in this active and growing field of research.

Leveraged Acquisitions: Technical and Financial Issues

The main purpose of the chapter is to analyze the technical, financial and fiscal issues associated with leveraged acquisitions. Leveraged buyouts represent a crucial deal class in the area of structured finance. In particular, these types of transaction refer to a class of extraordinary financial operations within the larger “family” of mergers and acquisitions (M&A) transactions, expression qualifying those deals that produce deep and permanent changes in the ownership structure of one or more enterprises. Leveraged acquisitions involve the constitution of a “vehicle company” (also called “special purpose vehicle”, “new company” or, simply, “newco”) for the transfer of the ownership and, in this case, the acquisition occurs “off balance sheet” for the proponent subject. Leveraged acquisitions have been the subject of extensive discussions, especially with reference to their financial structure and the financial performance of the companies involved. Furthermore, leveraged acquisitions have experienced a number of legal and fiscal challenges strictly connected to the interpretation of their technical and financial structure. In this chapter, the authors want to provide a vision as complete and critical as possible of this kind of operations, in the knowledge that a partial approach to the topic could lead to conclusions too simplistic or, eventually, vitiated from preconceived notions and judgments of value.

Voluntary Delisting? A Valid Option for Firms Restructuring

Analysing a comprehensive dataset of European going private deals during the period 1998-2007, we explore the post-transaction operating performance of companies gone private and potential variables that can explain this choice. We find these firms’ situations improved slightly before going private, even if the most relevant and significant benefits on operating performance appear in the short and medium term. We show that the presence of a private equity provider appears to positively affect long-term performance, especially when the target company is large and needs to embark on a complex restructuring process. We further analyse restructuring, providing some evidence that, for companies with complex turnaround plans, going private is a valid option for implementing their strategies more effectively away from the public eye. In particular, we also show that this is particularly relevant for smaller public firms that cannot afford to undertake such a process without the whole support of the market. Finally, we do not find any evidence that size is, per se, a factor that has any structural impact on post-deal performance.

The Performance of Angel-Backed Companies

We provide empirical evidence of the post-investment performance and survivorship profile of angel-backed companies, filling a long-standing gap within the entrepreneurial finance literature. Using a unique database of 111 angel-backed companies that received angel investments between 2008 and 2012 and at least 3 years of post-investment financial data, we develop an innovative performance metric and show that the performance and the probability of survival of investee companies are positively affected by the presence of angel syndicates and the hands-on involvement of business angels, while they are negatively related to the intensity of angel monitoring and the structure of equity provision. Our results are robust to several endogeneity tests and provide insights on the multifaceted contributions of angel investors to the performance and survival of new ventures.

Competitive Frontiers in Equity Crowdfunding: The Role of Venture Capitalists and Business Angels in the Early-Stage Financing Industry

The issue of the stimulation and funding of young or newly created SMEs has been discussed in recent years by professionals, academia, bankers and policymakers, in the context of the capital constraints that have been a part of the economic recession that followed the 2007–2008 global financial crisis. In this environment of constrained lending, it is crucial to shed light on an opaque segment of the capital market industry that is well suited to filling the equity gap. The participants early-stage financing include institutional as well as non-institutional investors, such as technology parks, venture incubators, business accelerators, academic spin-offs and the recently emerged equity crowdfunding platforms. This chapter provides an insight into the roles these different actors can play as a way of investigating whether equity crowdfunding platforms will challenge or complement the existing sources of early-stage financing.

Financial Constraints to Italian SME Growth: A Proposed Solution through VC and PE Financing

The last few decades have seen increased emphasis on the dynamism of small and medium enterprises (SMEs) to accelerate economies. This has been accompanied by a greater focus on creating financial markets that efficiently meet the needs of these businesses. These trends are of particular interest in Italy, whose economy has traditionally depended on the wealth produced by its industrial districts.

The Constitution of a Venture Capital Company

The objective of the present work is to perform a detailed exploration of the different models in which it is possible to carry out institutional venture capital activity in Italy, i.e. the investment by qualified financial intermediaries in the risk capital of non-fiinancial companies. This investment, in line with the terminology used in economic literature and professional practice, must also show significant growth prospects and be in the initial stages of thei company’s development process1.