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Venture Capitalist Value-Added Activities, Fundraising and Drawdowns

38 Pages Posted: 4 Jan 2007  

Grant Fleming

Continuity Capital Partners

Douglas J. Cumming

York University - Schulich School of Business

Jo-Ann Suchard

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

Abstract

This paper is the first to introduce an analysis of the effect of different types of venture capitalist value-added activities (financial, administrative, marketing strategic/management) on fundraising. In addition, we include an analysis of the functional difference between committed funds and drawdowns from capital commitments vis-a-vis pension funds and venture capital funds. The new comprehensive data, collected by the Australian Bureau of Statistics for 1999-2001, enable controls for venture capitalist performance, risk, investment activity, and management and performance fees. The results indicate that significantly more capital is allocated to venture capitalists that provide financial and strategic/management expertise to entrepreneurial firms (as opposed to marketing and administrative expertise). In addition, fundraising is greater among funds with higher returns and performance fees and lower fixed management fees. In contrast, drawdowns from capital commitments are greater among venture capital funds that provide financial and marketing expertise to investees (as opposed to strategic and administrative expertise), and among funds with higher performance fees and fixed management fees. Further, the results indicate an adverse impact on venture capital fundraising from illiquidity attributable to a two-year lock-up period in IPO exits over the period considered.

Keywords: Venture Capital, Fundraising, Drawdowns, Value Added Activities, Returns, Compensation

JEL Classification: G24, G28, G31, G32, G35

Suggested Citation

Fleming, Grant and Cumming, Douglas J. and Suchard, Jo-Ann, Venture Capitalist Value-Added Activities, Fundraising and Drawdowns. Journal of Banking and Finance, Vol. 29, pp. 295-331, 2005 . Available at SSRN: https://ssrn.com/abstract=466962

Grant Alan Fleming

Continuity Capital Partners ( email )

GPO Box 314
Canberra, Australian Capital Territory 2601
Australia

Douglas J. Cumming (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

HOME PAGE: http://booksite.elsevier.com/9780124095373/

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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