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Venture capital performance: the disparity between Europe and the United States

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  • Hege, Ulrich
  • Palomino, Frederic
  • Schwienbacher, Armin

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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39551.

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Date of creation: Feb 2009
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Publication status: Published in Finance 1.30(2009): pp. 7-50
Handle: RePEc:pra:mprapa:39551

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

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References

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Citations

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Cited by:
  1. Roman Kraussl & Stefan Krause, 2013. "Has Europe Been Catching Up? An Industry Level Analysis of Venture Capital Success over 1985-2009," LSF Research Working Paper Series, Luxembourg School of Finance, University of Luxembourg 13-6, Luxembourg School of Finance, University of Luxembourg.
  2. Johan, Sofia A., 2010. "Listing standards as a signal of IPO preparedness and quality," International Review of Law and Economics, Elsevier, Elsevier, vol. 30(2), pages 128-144, June.
  3. Inderst, Roman & Mueller, Holger M., 2009. "Early-stage financing and firm growth in new industries," Journal of Financial Economics, Elsevier, Elsevier, vol. 93(2), pages 276-291, August.
  4. Roman Kraussl & Stefan Krause, 2013. "Has Europe Been Catching Up? An Industry Level Analysis of Venture Capital Success over 1985-2009," CREA Discussion Paper Series 13-6, Center for Research in Economic Analysis, University of Luxembourg.
  5. Achleitner, Ann-Kristin & Engel, Nico & Reiner, Uwe, 2013. "The performance of venture capital investments: Do investors overreact?," Review of Financial Economics, Elsevier, Elsevier, vol. 22(1), pages 20-35.
  6. Cumming, Douglas & Helge Haß, Lars & Schweizer, Denis, 2013. "Private equity benchmarks and portfolio optimization," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(9), pages 3515-3528.
  7. Bernile, Gennaro & Cumming, Douglas & Lyandres, Evgeny, 2007. "The size of venture capital and private equity fund portfolios," Journal of Corporate Finance, Elsevier, Elsevier, vol. 13(4), pages 564-590, September.

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