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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.


Related in: MedlinePlus

Time Effects in Multivariate Regressions of Firm StageThis graph illustrates the time effects from regressions presented in Table3 relative to the base year 1990. Vertical lines indicate the approximate end of boom periods.
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fig03: Time Effects in Multivariate Regressions of Firm StageThis graph illustrates the time effects from regressions presented in Table3 relative to the base year 1990. Vertical lines indicate the approximate end of boom periods.

Mentions: A comparison between the dotcom period and the recent financial crisis can be useful when generating further insight into the reaction of VC markets to changes in the macroeconomic framework. The time effects in our regressions of investment stages demonstrate striking differences between the two shocks. Figure3 presents a summary of the effects obtained in Table3. We find strong and highly significant negative time effects on expansion financing during the financial crisis, but positive ones for late stage investments. The opposite picture emerges during the dotcom period, which shows growth in expansion investments and a small decline in late stage investments. Interestingly, and similar to the univariate case, we find a positive time effect on early stage investments in recent years, but a negative effect on seed investments, while none of these effects can be detected during the dotcom period. The same picture emerges if we use models including environmental indicators (Table4) plus a time dummy for the years 2010 and 2011. This time dummy yields estimates of the most recent time trend, which are consistent with an abnormal increase in late stage financings, more early stage investments, but fewer expansion and seed stage deals.


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

Lahr H, Mina A - Financ Manage (2014)

Time Effects in Multivariate Regressions of Firm StageThis graph illustrates the time effects from regressions presented in Table3 relative to the base year 1990. Vertical lines indicate the approximate end of boom periods.
© Copyright Policy - open-access
Related In: Results  -  Collection

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

fig03: Time Effects in Multivariate Regressions of Firm StageThis graph illustrates the time effects from regressions presented in Table3 relative to the base year 1990. Vertical lines indicate the approximate end of boom periods.
Mentions: A comparison between the dotcom period and the recent financial crisis can be useful when generating further insight into the reaction of VC markets to changes in the macroeconomic framework. The time effects in our regressions of investment stages demonstrate striking differences between the two shocks. Figure3 presents a summary of the effects obtained in Table3. We find strong and highly significant negative time effects on expansion financing during the financial crisis, but positive ones for late stage investments. The opposite picture emerges during the dotcom period, which shows growth in expansion investments and a small decline in late stage investments. Interestingly, and similar to the univariate case, we find a positive time effect on early stage investments in recent years, but a negative effect on seed investments, while none of these effects can be detected during the dotcom period. The same picture emerges if we use models including environmental indicators (Table4) plus a time dummy for the years 2010 and 2011. This time dummy yields estimates of the most recent time trend, which are consistent with an abnormal increase in late stage financings, more early stage investments, but fewer expansion and seed stage deals.

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.


Related in: MedlinePlus