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
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: Suggested Citation
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