Foreign VCs and Venture Success: Evidence from China
UNSW Australia - UNSW Business School; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)
University of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)
Journal of Corporate Finance, 2013, Vol. 21, No. 1, pp. 16-35
This paper analyzes the role of foreign VCs in driving venture success in emerging markets. We analyze a comprehensive data-set of 4753 portfolio companies from China. We test whether the presence of a foreign VC increases the likelihood that a portfolio company is successfully exited. We find that the presence of a foreign VC does not per se significantly increase the likelihood of a successful exit. However, the likelihood of a successful exit increases if the foreign VC collaborates with a joint venture (JV) partner. Further, the impact of foreign VC backing depends on the nature of the VC, with foreign VCs tending to perform better when investing in late-stage companies and when they are diversified across industries. If a foreign VC successfully exits an investment, then, compared with a domestic-VC, it prefers to exit via a M&A or secondary-buyout than via an IPO, reflecting the significant lock-up periods associated with VC-backed IPOs in China, the difficulty of achieving a foreign listing, and the difficulty listing a start-up on Chinese markets.
Number of Pages in PDF File: 43
Keywords: venture capital, private equity, China, cross-border investment, internationalization, IPOs
JEL Classification: G24, G34Accepted Paper Series
Date posted: January 4, 2013 ; Last revised: December 4, 2013
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