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Firm Valuation In Venture Capital Financing Rounds: The Role Of Investor Bargaining Power

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  • A. HEUGHEBAERT
  • S. MANIGART
  • -

Abstract

This study explores the impact of bargaining power of venture capital (VC) firms on the valuation of their portfolio companies. We argue that VC firm types with greater bargaining power vis- -vis the entrepreneur negotiate lower valuations compared to VC firm types with less bargaining power. We find that VC firm types with stronger bargaining power, namely university and government VC firms, value investments lower compared to independent VC firms. The valuations of captive VC firms equal those of independent VC firms. Our findings suggest that valuations in the VC contract reflect the relative bargaining power of the VC investor.

Suggested Citation

  • A. Heughebaert & S. Manigart & -, 2010. "Firm Valuation In Venture Capital Financing Rounds: The Role Of Investor Bargaining Power," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/644, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:10/644
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    References listed on IDEAS

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    1. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    2. Markus M. Mäkelä & Markku V. J. Maula, 2005. "Cross-border venture capital and new venture internationalization: An isomorphism perspective," Venture Capital, Taylor & Francis Journals, vol. 7(3), pages 227-257, July.
    3. La Porta, Rafael, et al, 1997. "Good News for Value Stocks: Further Evidence on Market Efficiency," Journal of Finance, American Finance Association, vol. 52(2), pages 859-874, June.
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