Banks Joining Venture Capital Investments: Portfolio Selection, Strategic Objectives, Performance and Exit
59 Pages Posted: 19 Nov 2018
Date Written: November 19, 2018
The main strategic objective of bank-affiliated venture capital funds (BVCs) is to enhance demand of debt capital from portfolio companies. This paper investigates the channels through which banks pursue such a strategy. Using detailed data from seven Western European countries in the period 1991-2010, we show, first, that BVC deals are more likely in larger syndicates led by independent venture capitalists, and in “safe” countries. Second, syndicates involving BVCs strategically select investees with a lower liquidity than matched peers and have a negligible impact on their investees’ operational performance. Third, investees do not show an increase in debt exposure, compared to matched non-VC-backed firms, but, instead, show a stable need of cash over time. These findings demonstrate that while BVCs aim to enhance demand of debt capital from investees that need liquidity to invest and grow, they still seek to avoid acerbating the default risk of their investees. Finally, syndicates involving BVCs have a large positive impact on the likelihood of IPOs and acquisition exits.
Keywords: bank, venture capital, syndication, Europe, matching, performance
JEL Classification: G21, G24, G32, G33, G34, L26
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