The Different Role Played by Venture Capital and Private Equity Investors on the Investment Activity of Their Portfolio Firms

45 Pages Posted: 14 Oct 2011 Last revised: 15 Dec 2017

See all articles by Fabio Bertoni

Fabio Bertoni

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control

María Alejandra Ferrer

affiliation not provided to SSRN

José Martí

Universidad Complutense de Madrid - Department of Accounting and Finance

Date Written: August 31, 2011

Abstract

Venture Capital (VC) and Private Equity (PE) investors play a different role in their portfolio companies. We argue that this will translate in a recognizable difference in the investment sensitivity to cash flows of portfolio companies and its evolution after the first investment round. We hypothesise that VC, thanks to its ability in overcoming asymmetries in information, will entail a reduction in the financial constraints which hampered the grow of investee firms. We predict, instead, a greater dependency of investments to cash flow for PE-backed companies, driven by the renewed interest for growth of their management combined with higher leverage. We find evidence confirming our hypotheses on a large panel of Spanish unlisted firms in low and medium technology sectors, where both VC and PE firms are active.

Keywords: Venture Capital, Private Equity, buyouts, investment sensitivity to cash flow

JEL Classification: G32, G24

Suggested Citation

Bertoni, Fabio and Ferrer, María Alejandra and Martí Pellón, José, The Different Role Played by Venture Capital and Private Equity Investors on the Investment Activity of Their Portfolio Firms (August 31, 2011). Bertoni, F., Ferrer, M.A., Martí, J. (2013). The different role played by venture capital and private equity investors on the investment activity of their portfolio firms. Small Business Economics, 40(3), 607-633., Available at SSRN: https://ssrn.com/abstract=1944058

Fabio Bertoni

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control ( email )

23, av. Guy de Collongue BP 174
69132 Ecully Cedex
France

María Alejandra Ferrer

affiliation not provided to SSRN ( email )

José Martí Pellón (Contact Author)

Universidad Complutense de Madrid - Department of Accounting and Finance ( email )

Carretera de Humera s/n
Madrid 28223, Madrid 28223
Spain
+ 3491 3942310 (Phone)
+ 34 91 3942534 (Fax)

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