TECHNISCHE UNIVERSITT MNCHEN Determinants of Venture ... UNIVERSITT MNCHEN ... List of Figures ......

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  • TECHNISCHE UNIVERSITT MNCHEN

    Lehrstuhl fr Entrepreneurial Finance, untersttzt durch die KfW Bankengruppe

    Univ.-Prof. Dr. Dr. Ann-Kristin Achleitner

    Determinants of Venture Capital Performance

    Empirical Evidence

    Uwe H. Reiner

    Vollstndiger Abdruck der von der Fakultt fr Wirtschaftswissenschaften der Techni-

    schen Universitt Mnchen zur Erlangung des akademischen Grades eines Doktors der Wirt-

    schaftswissenschaften (Dr. rer. pol.) genehmigten Dissertation.

    Vorsitzende: Univ.-Prof. Dr. Isabell Melanie Welpe

    Prfer der Dissertation: 1. Univ.-Prof. Dr. Dr. Ann-Kristin Achleitner

    2. Univ.-Prof. Dr. Christoph Kaserer

    Die Dissertation wurde am 17.05.2013 bei der Technischen Universitt Mnchen eingereicht

    und durch die Fakultt fr Wirtschaftswissenschaften am 15.08.2013 angenommen.

  • II

    What Georg Bernard Shaw said about love affairs is also apt for business: Any fool

    can start one, it takes a genius to end one successfully

    William D. Bygrave

  • III

    Table of Contents - Overview

    Table of Contents .................................................................................................................... V

    List of Figures ......................................................................................................................... IX

    List of Tables ........................................................................................................................... XI

    List of Abbreviations ............................................................................................................ XII

    1 Introduction ......................................................................................................................... 1

    1.1 Motivation and Research Objectives ......................................................................... 1

    1.2 Structure of the Thesis ............................................................................................... 8

    2 The Venture Capital Industry .......................................................................................... 11

    2.1 Definition of Venture Capital .................................................................................. 11

    2.2 The Venture Capital Investment Process ................................................................. 26

    3 Performance of Venture Capital Investments ................................................................ 41

    3.1 Performance Measurement ...................................................................................... 41

    3.2 Performance Drivers of Venture Capital Investments ............................................. 68

    3.3 Motivation for Own Empirical Analysis ............................................................... 110

    4 Essay 1 - The Performance of Venture Capital Investments: Do Investors Overreact? ...................................................................................................................... 114

    4.1 Introduction ............................................................................................................ 115

    4.2 Theoretical Considerations and Propositions ........................................................ 118

    4.3 The Data ................................................................................................................. 120

    4.4 Boom and Bust Cycles and Venture Capital Performance .................................... 137

    4.5 Conclusion ............................................................................................................. 151

    5 Essay 2 Industry Relatedness in Trade Sales and Venture Capital Investment Returns ........................................................................................................................... 158

    5.1 Introduction ............................................................................................................ 159

    5.2 Theoretical Background and Hypotheses .............................................................. 162

  • IV

    5.3 Data and Variables ................................................................................................. 171

    5.4 Empirical Results on Venture Capital Return Differences in Trade Sales ............ 179

    5.5 Discussion .............................................................................................................. 189

    5.6 Conclusion ............................................................................................................. 192

    6 Conclusion ........................................................................................................................ 194

    6.1 Summary of Results ............................................................................................... 194

    6.2 Outlook and Future Research ................................................................................ 202

    References ............................................................................................................................. 206

  • V

    Table of Contents

    Table of Contents .................................................................................................................... V

    List of Figures ......................................................................................................................... IX

    List of Tables ........................................................................................................................... XI

    List of Abbreviations ............................................................................................................ XII

    1 Introduction ......................................................................................................................... 1

    1.1 Motivation and Research Objectives ......................................................................... 1

    1.2 Structure of the Thesis ............................................................................................... 8

    2 The Venture Capital Industry .......................................................................................... 11

    2.1 Definition of Venture Capital .................................................................................. 11

    2.1.1Characteristics of the Venture Capitalist ..................................................... 13

    2.1.2Characteristics of the Portfolio Company .................................................... 20

    2.2 The Venture Capital Investment Process ................................................................. 26

    3 Performance of Venture Capital Investments ................................................................ 41

    3.1 Performance Measurement ...................................................................................... 41

    3.1.1Venture Capital Return Measures ................................................................ 41

    3.1.2Levels of Return Measurement Gross versus Net Returns ....................... 50

    3.1.3Data Sources for Venture Capital Return Analysis ..................................... 54

    3.1.4Expected versus Actual Venture Capital Performance ................................ 61

    3.2 Performance Drivers of Venture Capital Investments ............................................. 68

    3.2.1Framework to Evaluate Venture Capital Performance Drivers ................... 68

    3.2.1.1 General Framework ............................................................................ 68

    3.2.1.2 Employed Literature ........................................................................... 71

    3.2.2VC Firm-Related Success Factors ............................................................... 73

    3.2.2.1 VC Activism ....................................................................................... 75

  • VI

    3.2.2.2 VC Experience, Specialization & Reputation .................................... 77

    3.2.2.3 VC Syndication & Networks .............................................................. 85

    3.2.3Portfolio Company-Related Success Factors ............................................... 88

    3.2.3.1 Development Stage ............................................................................. 89

    3.2.3.2 Industry ............................................................................................... 90

    3.2.3.3 Geography & Proximity ..................................................................... 92

    3.2.4VC Contracting Related Success Factors .................................................... 94

    3.2.4.1 VC Investment Rights ........................................................................ 95

    3.2.4.2 VC Staging ......................................................................................... 96

    3.2.4.3 Convertible Securities ........................................................................ 98

    3.2.5Market-Related Value Drivers ..................................................................... 99

    3.2.5.1 Capital Markets .................................................................................. 99

    3.2.5.2 Activity Level of the VC Industry .................................................... 102

    3.2.5.3 Legal & Regulatory Environment .................................................... 104

    3.2.6Limitations ................................................................................................. 107

    3.3 Motivation for Own Empirical Analysis .