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Maia Gejadze, Pierre Giot and Armin Schwienbacher
''On venture capital exit dynamics''
( 2023, Vol. 43 No.1 )
This paper uses a competing risks model with time-varying covariates to study the duration of venture capital (VC) investments among U.S.-based VC-backed entrepreneurial start-ups. We specifically analyze the dynamics of venture capital funding, investment syndication, and financial market conditions throughout VC investment duration and then link these variables to the different exit outcomes. Parameter estimates from our models confirm that our approach provides refined evidence for the determinants of VC exit dynamics. We find that the VC incubation period is the shortest for single-round syndicated investments. Among portfolio companies receiving VC through multiple rounds, the fastest initial public offerings (IPOs) occur in booming technological industries for which VC firms provided deep pockets at the exit. In contrast, the quickest trade sales occur for the firms where venture capitalists eased the initial cash constraints of the portfolio companies and decreased their financing thereafter. In addition, improved liquidity conditions over the course of investment duration are likely to delay VC write-offs.
Keywords: Venture Capital, IPO, Trade sale, Liquidation, Survival Analysis, Time-varying covariates
JEL: G2 - Financial Institutions and Services: General
G3 - Corporate Finance and Governance: General
Manuscript Received : Feb 01 2023 Manuscript Accepted : Mar 30 2023

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