IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-02312949.html
   My bibliography  Save this paper

Incremental impact of venture capital financing

Author

Listed:
  • Yan Alperovych

    (EM - EMLyon Business School)

  • Georges Hübner

    (HEC Liège, Maastricht University [Maastricht])

Abstract

This paper investigates the differences in the return generating process of venture capital (VC)-backed firms and their peers that operate without VC financing. Using a unique hand-picked database of 990 VC-backed Belgian firms and a complete population of Belgian small and medium-sized enterprises (SMEs), we focus on the extent to which the presence of a VC investor affects the sensitivity of a firm's returns to the changes in the capital structure, in the operating cycle, and in the industry dynamics. The differences may stem from the (self-) selection of better companies into VC portfolios, from the venture capitalists' (VCs) value-adding activities, and/or from both. We examine these factors in the context of a complex simulation procedure which allows separating selection from value-adding when traditional approaches are difficult to implement. Our results indicate that VC-backed firms are able to extract more rent from the changing industry conditions and from the optimizations in their capital structure. The presence of VCs in the firm's equity seems to have only a marginal effect on the operating cycle efficiency. Overall, the results are suggestive of the value-adding being the main driver of the VC-backed firm's performance.

Suggested Citation

  • Yan Alperovych & Georges Hübner, 2013. "Incremental impact of venture capital financing," Post-Print hal-02312949, HAL.
    • Handle: RePEc:hal:journl:hal-02312949
    DOI: 10.1007/s11187-012-9448-6
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Salim Chahine & Igor Filatotchev & Mike Wright, 2007. "Venture Capitalists, Business Angels, and Performance of Entrepreneurial IPOs in the UK and France," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3‐4), pages 505-528, April.
    2. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492, National Bureau of Economic Research, Inc.
    3. Klepper, Steven & Simons, Kenneth L., 2005. "Industry shakeouts and technological change," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 23-43, February.
    4. Macmillan, Ian C. & Zemann, Lauriann & Subbanarasimha, P. N., 1987. "Criteria distinguishing successful from unsuccessful ventures in the venture screening process," Journal of Business Venturing, Elsevier, vol. 2(2), pages 123-137.
    5. Sophie Manigart & Katleen Baeyens & Wim Van Hyfte, 2002. "The survival of venture capital backed companies," Venture Capital, Taylor & Francis Journals, vol. 4(2), pages 103-124, April.
    6. Bottazzi, Laura & Da Rin, Marco & Hellmann, Thomas, 2008. "Who are the active investors?: Evidence from venture capital," Journal of Financial Economics, Elsevier, vol. 89(3), pages 488-512, September.
    7. Mike Wright, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 521-570.
    8. Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2008. "Productivity, profitability and financial performance," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 17(4), pages 711-751, August.
    9. Salim Chahine & Igor Filatotchev & Mike Wright, 2007. "Venture Capitalists, Business Angels, and Performance of Entrepreneurial IPOs in the UK and France," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3-4), pages 505-528.
    10. Steven N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, vol. 60(4), pages 1791-1823, August.
    11. Steven N. Kaplan & Per Strömberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 281-315.
    12. Tyzoon T. Tyebjee & Albert V. Bruno, 1984. "A Model of Venture Capitalist Investment Activity," Management Science, INFORMS, vol. 30(9), pages 1051-1066, September.
    13. Mike, Ken Wright Robbie, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5‐6), pages 521-570, June.
    14. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    15. Cumming, Douglas J., 2005. "Capital structure in venture finance," Journal of Corporate Finance, Elsevier, vol. 11(3), pages 550-585, June.
    16. repec:bla:jfinan:v:59:y:2004:i:4:p:1805-1844 is not listed on IDEAS
    17. Alperovych, Yan & Hübner, Georges, 2011. "Explaining returns on venture capital backed companies: Evidence from Belgium," Research in International Business and Finance, Elsevier, vol. 25(3), pages 277-295, September.
    18. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    19. Cochrane, John H., 2005. "The risk and return of venture capital," Journal of Financial Economics, Elsevier, vol. 75(1), pages 3-52, January.
    20. Baum, Joel A. C. & Silverman, Brian S., 2004. "Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology startups," Journal of Business Venturing, Elsevier, vol. 19(3), pages 411-436, May.
    21. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-984.
    22. Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July.
    23. Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2007. "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance, American Finance Association, vol. 62(1), pages 251-301, February.
    24. Jean-Etienne de Bettignies, 2008. "Financing the Entrepreneurial Venture," Management Science, INFORMS, vol. 54(1), pages 151-166, January.
    25. Arthur Korteweg & Morten Sorensen, 2010. "Risk and Return Characteristics of Venture Capital-Backed Entrepreneurial Companies," The Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3738-3772, October.
    26. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    27. Macmillan, Ian C. & Siegel, Robin & Narasimha, P. N. Subba, 1985. "Criteria used by venture capitalists to evaluate new venture proposals," Journal of Business Venturing, Elsevier, vol. 1(1), pages 119-128.
    28. Macmillan, Ian C. & Kulow, David M. & Khoylian, Roubina, 1989. "Venture capitalists' involvement in their investments: Extent and performance," Journal of Business Venturing, Elsevier, vol. 4(1), pages 27-47, January.
    29. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    30. Klepper, Steven, 1997. "Industry Life Cycles," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 6(1), pages 145-181.
    31. Hellmann, Thomas, 2006. "IPOs, acquisitions, and the use of convertible securities in venture capital," Journal of Financial Economics, Elsevier, vol. 81(3), pages 649-679, September.
    32. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    33. Francesca Cornelli & Oved Yosha, 2003. "Stage Financing and the Role of Convertible Securities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(1), pages 1-32.
    34. Gompers, Paul A, 1995. "Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-1489, December.
    35. Tom Vanacker & Sophie Manigart, 2010. "Pecking order and debt capacity considerations for high-growth companies seeking financing," Small Business Economics, Springer, vol. 35(1), pages 53-69, July.
    36. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
    37. Thomas Hellmann, 1998. "The Allocation of Control Rights in Venture Capital Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 57-76, Spring.
    38. Megginson, William L & Weiss, Kathleen A, 1991. "Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    39. Manuel Landajo & Javier De Andrés & Pedro Lorca, 2008. "Measuring firm performance by using linear and non‐parametric quantile regressions," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 57(2), pages 227-250, April.
    40. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring.
    41. Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January.
    42. Hubert Ooghe & Elisabeth Laere & Tine Langhe, 2006. "Are Acquisitions Worthwhile? An Empirical Study of the Post-Acquisition Performance of Privately Held Belgian Companies," Small Business Economics, Springer, vol. 27(2), pages 223-243, October.
    43. Dimov, Dimo P. & Shepherd, Dean A., 2005. "Human capital theory and venture capital firms: exploring "home runs" and "strike outs"," Journal of Business Venturing, Elsevier, vol. 20(1), pages 1-21, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alperovych, Yan & Hübner, Georges & Lobet, Fabrice, 2015. "How does governmental versus private venture capital backing affect a firm's efficiency? Evidence from Belgium," Journal of Business Venturing, Elsevier, vol. 30(4), pages 508-525.
    2. Maria do Rosario Correia & Raquel F. Ch. Meneses, 2019. "Venture Capital and the Use of Convertible Securities and Control Rights Covenants: A Fuzzy Set Approach," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 5(1), pages 5-20.
    3. Thomas Standaert & Sophie Manigart, 2018. "Government as fund-of-fund and VC fund sponsors: effect on employment in portfolio companies," Small Business Economics, Springer, vol. 50(2), pages 357-373, February.
    4. Stefanie Weniger & Svenja Jarchow, 2023. "Between benefit and risk: how entrepreneurs evaluate corporate investors," Journal of Business Economics, Springer, vol. 93(5), pages 783-816, July.
    5. Carolin Bock & Alexander Huber & Svenja Jarchow, 2018. "Growth factors of research-based spin-offs and the role of venture capital investing," The Journal of Technology Transfer, Springer, vol. 43(5), pages 1375-1409, October.
    6. Bethmann, Nicola & Frieden, Matthias, 2019. "An analytical approach to crowdinvesting: The impact of marketing and idea stealing on the entrepreneur's decision making," Hannover Economic Papers (HEP) dp-649, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    7. Carolin Bock & Christian Landau & Moritz Orendt & Maximilian Schmidt, 2018. "Are Public Financing Schemes Beneficial For University Spin-Offs And The Technology Transfer Of Innovations?," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 22(06), pages 1-30, August.
    8. Thomas Bilaliib Udimal & Zhuang Jincai & Abdul-Aziz Ibn Musah & Cheng Hua, 2019. "Determinants of new products innovation in Ghanaian SMEs sector," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 9(1), pages 1-11, December.
    9. Balz, Frank P. & Brinkmann, Florian & Kanbach, Dominik K., 2023. "The impact of independent and heterogeneous corporate venture capital on firm efficiency," Journal of Business Venturing Insights, Elsevier, vol. 19(C).
    10. Fabio Bertoni & Massimo Colombo & Anita Quas, 2015. "The patterns of venture capital investment in Europe," Small Business Economics, Springer, vol. 45(3), pages 543-560, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alperovych, Yan & Hübner, Georges, 2011. "Explaining returns on venture capital backed companies: Evidence from Belgium," Research in International Business and Finance, Elsevier, vol. 25(3), pages 277-295, September.
    2. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    3. Alperovych, Yan & Hübner, Georges & Lobet, Fabrice, 2015. "How does governmental versus private venture capital backing affect a firm's efficiency? Evidence from Belgium," Journal of Business Venturing, Elsevier, vol. 30(4), pages 508-525.
    4. Johannes Wallmeroth & Peter Wirtz & Alexander Peter Groh, 2017. "Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review," Working Papers hal-01527999, HAL.
    5. Lohwasser, Todor S., 2020. "Meta-analyzing the relative performance of venture capital-backed firms," Discussion Papers of the Institute for Organisational Economics 4/2020, University of Münster, Institute for Organisational Economics.
    6. Rosenbusch, Nina & Brinckmann, Jan & Müller, Verena, 2013. "Does acquiring venture capital pay off for the funded firms? A meta-analysis on the relationship between venture capital investment and funded firm financial performance," Journal of Business Venturing, Elsevier, vol. 28(3), pages 335-353.
    7. Andrew Metrick & Ayako Yasuda, 2011. "Venture Capital and Other Private Equity: a Survey," European Financial Management, European Financial Management Association, vol. 17(4), pages 619-654, September.
    8. Colombo, Massimo G. & Grilli, Luca, 2010. "On growth drivers of high-tech start-ups: Exploring the role of founders' human capital and venture capital," Journal of Business Venturing, Elsevier, vol. 25(6), pages 610-626, November.
    9. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    10. Christof Beuselinck & Marc Deloof & Sophie Manigart, 2008. "Private Equity Investments and Disclosure Policy," European Accounting Review, Taylor & Francis Journals, vol. 17(4), pages 607-639.
    11. Bottazzi, Laura & Da Rin, Marco & Hellmann, Thomas, 2008. "Who are the active investors?: Evidence from venture capital," Journal of Financial Economics, Elsevier, vol. 89(3), pages 488-512, September.
    12. Mirjam Knockaert & Mike Wright & Bart Clarysse & Andy Lockett, 2010. "Agency and similarity effects and the VC’s attitude towards academic spin-out investing," The Journal of Technology Transfer, Springer, vol. 35(6), pages 567-584, December.
    13. Jens Burchardt & Ulrich Hommel & Dzidziso Samuel Kamuriwo & Carolina Billitteri, 2016. "Venture Capital Contracting in Theory and Practice: Implications for Entrepreneurship Research," Entrepreneurship Theory and Practice, , vol. 40(1), pages 25-48, January.
    14. Croce, Annalisa & Martí, José & Murtinu, Samuele, 2013. "The impact of venture capital on the productivity growth of European entrepreneurial firms: ‘Screening’ or ‘value added’ effect?," Journal of Business Venturing, Elsevier, vol. 28(4), pages 489-510.
    15. Douglas Cumming & Satish Kumar & Weng Marc Lim & Nitesh Pandey, 2023. "Mapping the venture capital and private equity research: a bibliometric review and future research agenda," Small Business Economics, Springer, vol. 61(1), pages 173-221, June.
    16. Christof Beuselinck & Marc Deloof & Sophie Manigart, 2004. "Venture Capital, Private Equity and Earnings Quality," Vlerick Leuven Gent Management School Working Paper Series 2004-02, Vlerick Leuven Gent Management School.
    17. Li, Yong & Vertinsky, Ilan B. & Li, Jing, 2014. "National distances, international experience, and venture capital investment performance," Journal of Business Venturing, Elsevier, vol. 29(4), pages 471-489.
    18. M. Knockaert & T. Vanacker, 2011. "The Association between Venture Capitalists’ Selection and Value Adding Behavior: Evidence from Early Stage High Tech Venture Capitalists," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/741, Ghent University, Faculty of Economics and Business Administration.
    19. Mirjam Knockaert & Tom Vanacker, 2013. "The association between venture capitalists’ selection and value adding behavior: evidence from early stage high tech venture capitalists," Small Business Economics, Springer, vol. 40(3), pages 493-509, April.
    20. Baeyens, K. & Manigart, S., 2006. "Who gets private equity? The role of debt capacity, growth and intangible assets," Vlerick Leuven Gent Management School Working Paper Series 2006-24, Vlerick Leuven Gent Management School.

    More about this item

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-02312949. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.