Limits...
Liquidity, Technological Opportunities, and the Stage Distribution of Venture Capital Investments.

Lahr H, Mina A - Financ Manage (2014)

Bottom Line: Consistent with liquidity risk theory, we find that the likelihood of investing in earlier stages increases relative to all private equity investments during liquidity crisis years.While liquidity is the main driver of acquisition investments and, to some extent, of expansion financings, technological opportunities are overall the main driver of early and late stage venture capital investments.In contrast to the dotcom crash, the recent financial crisis negatively affected the relative likelihood of expansion investments, but not of early and late stage investments.

View Article: PubMed Central - PubMed

ABSTRACT

This paper explores the determinants of the stage distribution of European venture capital investments from 1990 to 2011. Consistent with liquidity risk theory, we find that the likelihood of investing in earlier stages increases relative to all private equity investments during liquidity crisis years. While liquidity is the main driver of acquisition investments and, to some extent, of expansion financings, technological opportunities are overall the main driver of early and late stage venture capital investments. In contrast to the dotcom crash, the recent financial crisis negatively affected the relative likelihood of expansion investments, but not of early and late stage investments.

No MeSH data available.


Volume of Private Equity Investments by StageThis graph includes 37,831 investments in European targets from 1990 to 2012. Deals involving target firms in the financial sector have been excluded. Deal sizes are adjusted for inflation and converted into 2010 PPP euros. The lower graph excludes acquisitions and other investments to show the composition of earlier stages more clearly.
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fig02: Volume of Private Equity Investments by StageThis graph includes 37,831 investments in European targets from 1990 to 2012. Deals involving target firms in the financial sector have been excluded. Deal sizes are adjusted for inflation and converted into 2010 PPP euros. The lower graph excludes acquisitions and other investments to show the composition of earlier stages more clearly.

Mentions: Comparisons across time indicate a trend toward larger deals, primarily driven by the buyout sector. The total number of private equity investments has been steadily decreasing prior to the financial crisis after the postdotcom peak in 2004 (see Figure1). The financial crisis hit private equity markets in late 2008, when fundraising activities came to an almost complete halt and investments were cancelled or deferred. Investments picked up again after the dip in 2009, and have been in line with the general trend prior to the crisis since then. There was a similar period of low activity in 2001 and 2002, with the number of investments dropping even stronger. Deal numbers grew back to precrisis levels within three years both after the dotcom bubble and the financial crisis. In terms of deal volume, however, recovery took much longer after the dotcom bubble (see Figure2). The quick recovery appears to be driven by buyout/acquisition deals, whose euro volume rose quickly and stabilized on precrisis levels after the immediate liquidity shocks had subsided in 2010.


Liquidity, Technological Opportunities, and the Stage Distribution of Venture Capital Investments.

Lahr H, Mina A - Financ Manage (2014)

Volume of Private Equity Investments by StageThis graph includes 37,831 investments in European targets from 1990 to 2012. Deals involving target firms in the financial sector have been excluded. Deal sizes are adjusted for inflation and converted into 2010 PPP euros. The lower graph excludes acquisitions and other investments to show the composition of earlier stages more clearly.
© Copyright Policy - open-access
Related In: Results  -  Collection

License
Show All Figures
getmorefigures.php?uid=PMC4497487&req=5

fig02: Volume of Private Equity Investments by StageThis graph includes 37,831 investments in European targets from 1990 to 2012. Deals involving target firms in the financial sector have been excluded. Deal sizes are adjusted for inflation and converted into 2010 PPP euros. The lower graph excludes acquisitions and other investments to show the composition of earlier stages more clearly.
Mentions: Comparisons across time indicate a trend toward larger deals, primarily driven by the buyout sector. The total number of private equity investments has been steadily decreasing prior to the financial crisis after the postdotcom peak in 2004 (see Figure1). The financial crisis hit private equity markets in late 2008, when fundraising activities came to an almost complete halt and investments were cancelled or deferred. Investments picked up again after the dip in 2009, and have been in line with the general trend prior to the crisis since then. There was a similar period of low activity in 2001 and 2002, with the number of investments dropping even stronger. Deal numbers grew back to precrisis levels within three years both after the dotcom bubble and the financial crisis. In terms of deal volume, however, recovery took much longer after the dotcom bubble (see Figure2). The quick recovery appears to be driven by buyout/acquisition deals, whose euro volume rose quickly and stabilized on precrisis levels after the immediate liquidity shocks had subsided in 2010.

Bottom Line: Consistent with liquidity risk theory, we find that the likelihood of investing in earlier stages increases relative to all private equity investments during liquidity crisis years.While liquidity is the main driver of acquisition investments and, to some extent, of expansion financings, technological opportunities are overall the main driver of early and late stage venture capital investments.In contrast to the dotcom crash, the recent financial crisis negatively affected the relative likelihood of expansion investments, but not of early and late stage investments.

View Article: PubMed Central - PubMed

ABSTRACT

This paper explores the determinants of the stage distribution of European venture capital investments from 1990 to 2011. Consistent with liquidity risk theory, we find that the likelihood of investing in earlier stages increases relative to all private equity investments during liquidity crisis years. While liquidity is the main driver of acquisition investments and, to some extent, of expansion financings, technological opportunities are overall the main driver of early and late stage venture capital investments. In contrast to the dotcom crash, the recent financial crisis negatively affected the relative likelihood of expansion investments, but not of early and late stage investments.

No MeSH data available.