Venture Capital Performance: the Disparity Between Europe and the United States

41 Pages Posted: 11 Feb 2004 Last revised: 15 Mar 2013

See all articles by Ulrich Hege

Ulrich Hege

Toulouse School of Economics; European Corporate Governance Institute (ECGI)

Frédéric Palomino

EDHEC Business School - Department of Economics & Finance

Armin Schwienbacher

SKEMA Business School

Date Written: February 8, 2008

Abstract

This paper compares the success of venture capital investments in the United States and in Europe by analyzing individual venture-backed companies and the value generated within the stage financing process. We document that US venture capitalists generate significantly more value with their investments than their European counterparts. We find differences in contracting behavior, such as staging frequency and syndication, and evidence that they help to explain the observed performance gap and we report a substantial unexplained residual. We find that US venture funds investing in Europe do not perform better their European peers. European Common Law and Civil Law countries exhibit comparable levels of venture performance, and differences in stock market development or tax subsidies in favor of venture investments are unrelated to performance differences. European IPO exits from venture investments yield returns similar to the US, while trade sale exits weakly underperform. We attribute the overall performance gap essentially to the segment of poorly performing companies.

Keywords: venture capital performance, financial development, stage financing, exit, monitoring

JEL Classification: G24, G38

Suggested Citation

Hege, Ulrich and Palomino, Frédéric and Schwienbacher, Armin, Venture Capital Performance: the Disparity Between Europe and the United States (February 8, 2008). Available at SSRN: https://ssrn.com/abstract=482322 or http://dx.doi.org/10.2139/ssrn.482322

Ulrich Hege (Contact Author)

Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France
+33 5 61 12 86 01 (Phone)

HOME PAGE: http://https://www.tse-fr.eu/people/ulrich-hege

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Frédéric Palomino

EDHEC Business School - Department of Economics & Finance ( email )

France

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777
France

HOME PAGE: http://sites.google.com/view/armin-schwienbacher

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