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Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital-backed Start-ups

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  • Bing Guo
  • Yun Lou
  • David Pérez-Castrillo

Abstract

We propose a model of investment, duration, and exit strategies for start-ups backed by venture capital (VC) funds that accounts for the high level of uncertainty, the asymmetry of information between insiders and outsiders, and the discount rate. Our analysis predicts that start-ups backed by corporate VC funds remain for a longer period of time before exiting and receive larger investment amounts than those financed by independent VC funds. Although a longer duration leads to a higher likelihood of an exit through an acquisition, a larger investment increases the probability of an IPO exit. These predictions find strong empirical support.

Suggested Citation

  • Bing Guo & Yun Lou & David Pérez-Castrillo, 2012. "Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital-backed Start-ups," Working Papers 602, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:602
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    Cited by:

    1. Sunny Hahn & Jina Kang, 2017. "Complementary or conflictory?: the effects of the composition of the syndicate on venture capital-backed IPOs in the US stock market," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(1), pages 77-102, March.
    2. Banal-Estañol, Albert & Macho-Stadler, Inés & Nieto-Postigo, Jonás & Pérez-Castrillo, David, 2023. "Early individual stakeholders, first venture capital investment, and exit in the UK startup ecosystem," Journal of Corporate Finance, Elsevier, vol. 80(C).
    3. Maxin, Hannes, 2018. "The Corporate Venture Capital Exit Decision," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181647, Verein für Socialpolitik / German Economic Association.
    4. Ji Youn (Rose) Kim & Haemin Dennis Park, 2017. "Two Faces of Early Corporate Venture Capital Funding: Promoting Innovation and Inhibiting IPOs," Strategy Science, INFORMS, vol. 2(3), pages 161-175, September.
    5. Rehnen, Lena Marie, 2016. "Exit strategies of loyalty programs," jbm - Journal of Business Market Management, Free University Berlin, Marketing Department, vol. 9(1), pages 564-596.
    6. Shuwaikh, Fatima & Dubocage, Emmanuelle, 2022. "Access to the Corporate Investors' Complementary Resources: A Leverage for Innovation in Biotech Venture Capital-Backed Companies," Technological Forecasting and Social Change, Elsevier, vol. 175(C).
    7. Carolin Bock & Christian Hackober, 2020. "Unicorns—what drives multibillion-dollar valuations?," Business Research, Springer;German Academic Association for Business Research, vol. 13(3), pages 949-984, November.
    8. Antonio Meles & Stefano Monferr� & Vincenzo Verdoliva, 2014. "Do the effects of private equity investments on firm performance persist over time?," Applied Financial Economics, Taylor & Francis Journals, vol. 24(3), pages 203-218, February.
    9. Eric Braune & Jean-Sébastien Lantz & Jean-Michel Sahut & Frédéric Teulon, 2021. "Corporate venture capital in the IT sector and relationships in VC syndication networks," Small Business Economics, Springer, vol. 56(3), pages 1221-1233, February.
    10. Rossi, Matteo & Chouaibi, Jamel & Graziano, Domenico & Festa, Giuseppe, 2022. "Corporate venture capitalists as entrepreneurial knowledge accelerators in global innovation ecosystems," Journal of Business Research, Elsevier, vol. 142(C), pages 512-523.
    11. Jintong Tang & Zhi Tang & Renhong Zhu & Xinchun Li, 2021. "Entrepreneurs’ resource background, innovation, philanthropy and the exit of external Investment in Private Ventures in China," Asia Pacific Journal of Management, Springer, vol. 38(2), pages 467-489, June.
    12. Fatima Shuwaikh & Mathew Hughes & Souad Brinette & Sabrina Khemiri, 2024. "Investment decisions under uncertainty: Corporate venture capital as a real option," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 2452-2471, April.
    13. Jeon, Euiju & Maula, Markku, 2022. "Progress toward understanding tensions in corporate venture capital: A systematic review," Journal of Business Venturing, Elsevier, vol. 37(4).
    14. Yeon, Soojung, 2018. "How to be acquired by Google?: Analysis of target firms acquired by Google Inc," 22nd ITS Biennial Conference, Seoul 2018. Beyond the boundaries: Challenges for business, policy and society 190396, International Telecommunications Society (ITS).
    15. Patrick Röhm, 2018. "Exploring the landscape of corporate venture capital: a systematic review of the entrepreneurial and finance literature," Management Review Quarterly, Springer, vol. 68(3), pages 279-319, August.
    16. Tereza Tykvová, 2018. "Venture capital and private equity financing: an overview of recent literature and an agenda for future research," Journal of Business Economics, Springer, vol. 88(3), pages 325-362, May.

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    More about this item

    Keywords

    Venture Capital Funds; Start-ups; IPO; acquisition;
    All these keywords.

    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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