Private Equity Financing of Technology Firms: A Literature Review

Abstract

This paper summarizes findings from approximately 150 studies that address characteristics of private equity investments in general, and investments in technology companies in specific. The paper is structured along the private equity investment cycle and follows the successive phases of market screening and investment decision making, operative management of portfolio companies and exiting from investments. In the technology sector in particular, private equity investors have been both praised and criticized for their impact on firm capabilities. Therefore, at some length, the paper summarizes findings in extant literature addressing the impact of private equity investment on target firm’s innovative capabilities, entrepreneurial orientation, productivity, and its ability to make long term investments in intangible assets through R&D as well as in tangible assets through capital expenditures. Where observable, I point out differences among industries as well as differences among the subsequent waves of private equity transactions in the 80s, 90s, and 00s.

Keywords: Venture Capital; Private Equity; Buyouts; Innovation; R&D; Capital Structure; Entrepreneurial Orientation; Technology Firm; Agency Theory; Financial Intermediaries