Author:
Gupta Richa,Arora Padmasai
Abstract
Purpose
A critical aspect in venture capital (VC) exiting is the choice of exit mode. This study aims to predict if venture capitalists (VCs) can take the venture capital undertaking public by identifying the impact of investment attributes, market timing and macroeconomic conditions on the choice of mode of exit for VCs.
Design/methodology/approach
The study uses logistic regression on a sample of 632 Indian VC-backed firms where VCs exited during the past two decades via initial public offers (IPOs) and other routes, including strategic sale, secondary sale and buyback.
Findings
Results suggest that growth stage investments, larger syndication size and a larger number of IPOs increase the probability of exiting through IPOs, whereas investments in the information technology and information technology-enabled services industry have a higher likelihood of being exited through other routes. Region and gross domestic product are found to be statistically insignificant in predicting the likelihood for a particular mode of exit.
Practical implications
The results have practical implications for VCs as knowledge regarding the influence of investment attributes, market timing and macroeconomic conditions can help them in deciding their exit strategy vis-à-vis mode of exit and can maximize their potential gains. The results also have implications for the potential investors, primarily the public at large and acquirers.
Originality/value
The determinants of VC exit options remain an unexplored area in the Indian context. To the best of the authors’ knowledge, the study is the first of its kind that has used investment attributes, market timing and macroeconomic conditions to predict VC exit options in India.
Subject
General Business, Management and Accounting
Reference58 articles.
1. A lifecycle analysis of VC-PE investments in India: half full or half empty?;The Journal of Private Equity,2012
2. Venture capital and private equity in India: an analysis of investments and exits;Journal of Indian Business Research,2011
3. The tigers and their stripes: types of VC firms and their investment patterns in India;The Journal of Private Equity,2012
4. The legislative road to silicon valley;Oxford Economic Papers,2006