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Determinants of required return in venture capital investments: a five-country study

  • Manigart, Sophie
  • De Waele, Koen
  • Wright, Mike
  • Robbie, Ken
  • Desbrieres, Philippe
  • Sapienza, Harry J.
  • Beekman, Amy

Using two complementary theoretical perspectives, we develop hypotheses regarding the determinants of the return required by venture capitalists and test them on a sample of over 200 venture capital companies (VCCs) located in five countries. Consistent with resource based theory, we find that early stage specialists require a significantly higher return than other VCCs when investing in later stage ventures. Consistent with financial theory, we find that acquisition /buyout specialists require a significantly lower return than other VCCs when investing in expansion companies. Furthermore, in comparison to specialists, highly stage-diversified VCCs require a significantly higher return for early stage investments. Independent VCCs require a higher rate of return than captive or public VCCs. In general, higher required returns are associated with VCCs providing more intensity of involvement, having shorter expected hold-ing period of the investment, and being located in the US or UK (in comparison to those in France, Belgium, and the Netherlands).

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Article provided by Elsevier in its journal Journal of Business Venturing.

Volume (Year): 17 (2002)
Issue (Month): 4 (July)
Pages: 291-312

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Handle: RePEc:eee:jbvent:v:17:y:2002:i:4:p:291-312
Contact details of provider: Web page: http://www.elsevier.com/locate/jbusvent

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  18. Manigart, Sophie & Struyf, Carol, 1997. " Financing High Technology Startups in Belgium: An Explorative Study," Small Business Economics, Springer, vol. 9(2), pages 125-35, April.
  19. Gupta, Anil K. & Sapienza, Harry J., 1992. "Determinants of venture capital firms' preferences regarding the industry diversity and geographic scope of their investments," Journal of Business Venturing, Elsevier, vol. 7(5), pages 347-362, September.
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  23. Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November.
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  25. Moerland, Pieter W., 1995. "Alternative disciplinary mechanisms in different corporate systems," Journal of Economic Behavior & Organization, Elsevier, vol. 26(1), pages 17-34, January.
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