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

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

Abstract

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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Suggested Citation

  • Manigart, Sophie & De Waele, Koen & Wright, Mike & Robbie, Ken & Desbrieres, Philippe & Sapienza, Harry J. & Beekman, Amy, 2002. "Determinants of required return in venture capital investments: a five-country study," Journal of Business Venturing, Elsevier, vol. 17(4), pages 291-312, July.
    • Handle: RePEc:eee:jbvent:v:17:y:2002:i:4:p:291-312
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    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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