Firm Valuation in Venture Capital Financing Rounds: The Role of Investor Bargaining Power

Journal of Business Finance & Accounting, 39 (3-4), 500-530 (2012)

35 Pages Posted: 23 Dec 2010 Last revised: 22 Feb 2016

See all articles by Andy Heughebaert

Andy Heughebaert

Ghent University - Faculty of Economics and Business Administration

Sophie Manigart

Vlerick Business School; Ghent University

Multiple version iconThere are 2 versions of this paper

Date Written: December 22, 2010

Abstract

This study explores the impact of bargaining power of venture capital (VC) firms on the valuation of their portfolio companies. We argue that VC firm types with greater bargaining power vis-à-vis the entrepreneur negotiate lower valuations compared to VC firm types with less bargaining power. We find that VC firm types with stronger bargaining power, namely university and government VC firms, value investments lower compared to independent VC firms. The valuations of captive VC firms equal those of independent VC firms. Our findings suggest that valuations in the VC contract reflect the relative bargaining power of the VC investor.

Keywords: bargaining power, valuation, venture capital

JEL Classification: M13, G24, G32

Suggested Citation

Heughebaert, Andy and Manigart, Sophie, Firm Valuation in Venture Capital Financing Rounds: The Role of Investor Bargaining Power (December 22, 2010). Journal of Business Finance & Accounting, 39 (3-4), 500-530 (2012). Available at SSRN: https://ssrn.com/abstract=1729773 or http://dx.doi.org/10.2139/ssrn.1729773

Andy Heughebaert (Contact Author)

Ghent University - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

Sophie Manigart

Vlerick Business School ( email )

Reep 1
Ghent, BE-9000
Belgium

Ghent University ( email )

Sint-Pietersplein 7
Gent, 9000
Belgium

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