Realities of Long-Term Post Investment Performance for Venture-Backed Enterprises
AbstractThis paper constructs a model of long-run performance for SMEs that have received venture capital backing. The model explains performance by financial structure. FAME data are used for estimating performance equations over the period 1989 to 2004 for UK businesses in their post-investment period. The econometrics uses robust techniques, including least absolute error (LAE) and Tukey trimean estimation. It is shown that the key determinants of performance (measured by ROSF) are profit margins and risk, with lesser, but significant, roles played by liquidity and gearing. The sample is used to identify consistently high performers, and chronic low performers. From the latter group, two detailed case studies illustrate how chronic low performance can emerge, in each case caused by failure to achieve technological milestones, and thereby failing, ultimately, to convince investors of potential company worth.
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Bibliographic InfoPaper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0503.
Date of creation: Feb 2005
Date of revision:
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Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
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More information through EDIRC
Venture capital; investment performance; LAE estimation; research milestones;
Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-ENT-2005-06-14 (Entrepreneurship)
- NEP-FIN-2005-06-14 (Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Byrne,Joseph P. & Davis,E. Philip, 2003. "Financial Structure," Cambridge Books, Cambridge University Press, number 9780521831802.
- Lynne G. Zucker & Michael R. Darby & Jeff S. Armstrong, 2001.
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- Claessens, Stijn & Djankov, Simeon & Xu, Lixin Colin, 2000. "Corporate Performance in the East Asian Financial Crisis," World Bank Research Observer, World Bank Group, vol. 15(1), pages 23-46, February.
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- Philip Bunn & Victoria Redwood, 2003. "Company accounts based modelling of business failures and the implications for financial stability," Bank of England working papers 210, Bank of England.
- Dirk Engel, 2004. "The Performance of Venture-Backed Firms: The Effect of Venture Capital Company Characteristics," Industry & Innovation, Taylor and Francis Journals, vol. 11(3), pages 249-263.
- Falconer Mitchell & Gavin C Reid & Nicholas G Terry, 1994. "Post Investment Demand for Accounting Information by Venture Capitalists," CRIEFF Discussion Papers 9424, Centre for Research into Industry, Enterprise, Finance and the Firm.
- repec:wuk:andedp:9616 is not listed on IDEAS
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