Banks Joining Venture Capital Investments: Portfolio Selection, Strategic Objectives, Performance and Exit

59 Pages Posted: 19 Nov 2018

See all articles by Sofia Johan

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Samuele Murtinu

University of Groningen

Date Written: November 19, 2018

Abstract

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

Suggested Citation

Johan, Sofia A. and Murtinu, Samuele, Banks Joining Venture Capital Investments: Portfolio Selection, Strategic Objectives, Performance and Exit (November 19, 2018). TILEC Discussion Paper No. 2018-039. Available at SSRN: https://ssrn.com/abstract=3286963 or http://dx.doi.org/10.2139/ssrn.3286963

Sofia A. Johan (Contact Author)

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Samuele Murtinu

University of Groningen ( email )

Postbus 72
9700 AB Groningen
Netherlands

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