The influence of captive fund providers on the likelihood of achieving successful venture capital exits

Lunch Seminar in presence

José Marti Pellon
Universidad Complutense de Madrid

Abstract:
Most of the literature focuses on the relationship between VCs, as investors, and investee firms. The relationship between fund providers and VCs does not receive the same attention.
The paper highlights potentially higher agency costs in independent VCs, when compared to captive VCs. While the latter have one parent investor with full control, in the former various (minority) limited partners delegate the management to general partners.
Nevertheless, independent VCs have a clear financial goal and there is alignment of interest with limited partners, based on a contract that rewards successful exits. In contrast, captive VCs also have strategic goals and the management team is hired. Depending on the type of captive VCs, the strategic goals could be compatible with financial goals or not, the management team could have relevant experience or not, and could have proper incentives or not. Hence, the likelihood of achieving successful exits should be lower than that of independent VCs.
The results show that captive VCs backed by government agencies and financial institutions have a lower likelihood of exiting successfully than independent VCs. Captive VCs backed by corporations, however, seem to have compatible strategic and financial goals and their managers may contribute with specific industry knowledge.

José Marti Pellon is Full Professor of finance at the Universidad Complutense de Madrid, where he also obtained is PhD in Business in 1987. He teaches Corporate Finance (Graduate and postgraduate levels) and Venture Capital (VC) & Private Equity (PE) (Postgraduate courses). He tracks the Spanish VC & PE industry since its inception, creating databases on VC & PE, hybrid instruments and business angels. He founded Webcapitalriesgo to support this data-collection process. He is data contributor to the Spanish and European VC & PE associations and member of the operational board of the European Data Cooperative. He is member of the EBAN Research and Innovation Advisory Board. He publishes in top entrepreneurial finance and policy-related journals on topics such as determinants of fundraising, impact of or participative loans and VC on growth or productivity, links between family firms and VC, or assessment of value added by VC firms, among others.

Please click here to register