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Foreign VCs and Venture Success: Evidence from China

43 Pages Posted: 4 Jan 2013 Last revised: 4 Dec 2013

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Jo-Ann Suchard

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Date Written: 2013

Abstract

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.

Keywords: venture capital, private equity, China, cross-border investment, internationalization, IPOs

JEL Classification: G24, G34

Suggested Citation

Humphery-Jenner, Mark and Suchard, Jo-Ann, Foreign VCs and Venture Success: Evidence from China (2013). Journal of Corporate Finance, 2013, Vol. 21, No. 1, pp. 16-35. Available at SSRN: https://ssrn.com/abstract=2196223

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jo-Ann Suchard

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
61 2 9385 5876 (Phone)
61 2 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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