Cross-Border Investments and Venture Capital Exits in Europe

Abstract

We examine how the exit mode (i.e., initial public offering - IPO, trade sale, or write-off) of venture capital investments is influenced by additional exit opportunities brought by cross-border investors. We perform our analyses on a sample of 1,062 financing rounds in 462 high-tech start-ups in 7 European countries. Our findings indicate that, controlling for firm performance, investor characteristics, and local exit conditions, the probability of exiting via trade sale increases with the additional set of M&A opportunities brought by cross-border investors. A similar effect, but with weaker statistical significance, is detected for IPO exits. We reveal that cross-border investors may, at least partially, compensate for insufficient local exit possibilities. They can spillover the capital market activity of their home country and enhance exit options for young ventures. International syndicates are also quicker to write-off their non-performing investments. Hence, international syndication improves the proficiency of entrepreneurial finance relationships.

Keywords: Corporate Governance, Cross-border Ownership, Institutional Shareholder, Legal Efficiency, Cross-Listing, Mergers & Acquisitions

JEL Classification: G24, G32, G34