Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital‐Backed Start‐Ups

41 Pages Posted: 6 May 2015

See all articles by Bing Guo

Bing Guo

Universidad Carlos III de Madrid - Department of Business Administration

Yun Lou

Singapore Management University - School of Accountancy

David Pérez-Castrillo

Universidad Autonoma de Barcelona; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: Summer 2015

Abstract

We propose a model of investment, duration, and exit strategies for start‐ups backed by venture capital (VC) funds that accounts for the high level of uncertainty, the asymmetry of information between insiders and outsiders, and the discount rate. Our analysis predicts that start‐ups backed by corporate VC funds remain for a longer period of time before exiting and receive larger investment amounts than those financed by independent VC funds. Although a longer duration leads to a higher likelihood of an exit through an acquisition, a larger investment increases the probability of an IPO exit. These predictions find strong empirical support.

Suggested Citation

Guo, Bing and Lou, Yun and Pérez-Castrillo, David, Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital‐Backed Start‐Ups (Summer 2015). Journal of Economics & Management Strategy, Vol. 24, Issue 2, pp. 415-455, 2015, Available at SSRN: https://ssrn.com/abstract=2602994 or http://dx.doi.org/10.1111/jems.12097

Bing Guo (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Yun Lou

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

David Pérez-Castrillo

Universidad Autonoma de Barcelona ( email )

Edifici B - Campus Bellaterra
Barcelona, 08193
Spain
(34 93) 381 1405 (Phone)
(34 93) 581 2012 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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