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Foreign VCs and venture success: Evidence from China

  • Humphery-Jenner, Mark
  • Suchard, Jo-Ann

This paper analyzes the role of foreign VCs in driving venture success in emerging markets. We analyze a comprehensive data set of 4753 portfolio companies from China. We test whether the presence of a foreign VC increases the likelihood that a portfolio company is successfully exited. We find that the presence of a foreign VC does not per se significantly increase the likelihood of a successful exit. However, the likelihood of a successful exit increases if the foreign VC collaborates with a joint venture (JV) partner. Further, the impact of foreign VC backing depends on the nature of the VC, with foreign VCs tending to perform better when investing in late-stage companies and when they are diversified across industries. If a foreign VC successfully exits an investment, then, compared with a domestic-VC, it prefers to exit via a M&A or secondary-buyout than via an IPO, reflecting the significant lock-up periods associated with VC-backed IPOs in China, the difficulty of achieving a foreign listing, and the difficulty listing a start-up on Chinese markets.

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Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 21 (2013)
Issue (Month): C ()
Pages: 16-35

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Handle: RePEc:eee:corfin:v:21:y:2013:i:c:p:16-35
Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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