Venture capital in europe

Venture Capital in Europe Quantitative Finance Series Aims and Objectives • • • • • • Books based on the work of financial market practitioners and academics Presenting cutting-edge research to the professional/practitioner market Combining intellectual rigour and practical application Covering the interaction between mathematical theory and financial practice To improve portfolio performance, risk management and trading book performance Covering quantitative techniques Market Brokers/Traders; Actuaries; Consultants; Asset Managers; Fund Managers; Regulators; Central Bankers; Treasury Officials; Technical Analysts; and Academics for Masters in Finance and MBA market Series Titles Return Distributions in Finance Derivative Instruments: theory, valuation, analysis Managing Downside Risk in Financial Markets: theory, practice & implementation Economics for Financial Markets Performance Measurement in Finance: firms, funds and managers Real R&D Options Forecasting Volatility in the Financial Markets, Second edition Advanced Trading Rules, Second edition Advances in Portfolio Construction and Implementation Computational Finance Linear Factor Models in Finance Initial Public Offerings: an international perspective Venture Capital in Europe Series Editor Dr Stephen Satchell Dr Satchell is the Reader in Financial Econometrics at Trinity College, Cambridge; Visiting Professor at Birkbeck College, City University Business School and University of Technology, Sydney He also works in a consultative capacity to many firms, and edits the journal Derivatives: use, trading and regulations and the Journal of Asset Management Venture Capital in Europe Edited by Greg N Gregoriou Maher Kooli Roman Kraeussl AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD PARIS • SAN DIEGO • SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO Butterworth-Heinemann is an imprint of Elsevier Butterworth-Heinemann is an imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP, UK 30 Corporate Drive, Suite 400, Burlington, MA 01803, USA First edition 2007 Copyright © 2007 Elsevier Inc All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone (+44) (0) 1865 843830; fax (+44) (0) 1865 853333; email: permissions@elsevier.com Alternatively you can submit your request online by visiting the Elsevier website at http://elsevier.com/locate/permissions, and selecting Obtaining permission to use Elsevier material Notice No responsibility is assumed by the publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions or ideas contained in the material herein British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalogue record for this book is available from the Library of Congress ISBN–13: 978-0-7506-8259-6 ISBN–10: 0-7506-8259-0 For information on all Butterworth-Heinemann publications visit our website at http://books.elsevier.com Printed and bound in Great Britain 07 08 09 10 11 10 Working together to grow libraries in developing countries www.elsevier.com | www.bookaid.org | www.sabre.org Contents Foreword by Josh Lerner Preface and Acknowledgments About the Editors List of Contributors Part One European Venture Capital Markets: Recent Developments and Perspectives Venture capital in Europe: Closing the gap to the U.S Andreas Oehler, Kuntara Pukthuanthong, Marco Rummer, and Thomas Walker xiii xv xvii xix 1.1 Introduction 1.2 The European and U.S venture capital markets – a comparison 1.3 Economic effects and government intervention 1.4 Conclusion References 10 14 15 Public venture capital across Europe: A 15-year perspective Christof Beuselinck and Sophie Manigart 19 2.1 Introduction 2.2 Public versus private VC 2.3 Hypotheses 2.4 Data 2.5 The evolution of public VC in Europe 2.6 Multivariate analyses 2.7 Conclusion References 19 20 21 22 23 27 29 30 Why venture capital markets are well developed in some countries but comparatively small in others: Evidence from Europe Kuntara Pukthuanthong, Dolruedee Thiengtham, and Thomas Walker 33 3.1 3.2 3.3 33 34 36 Introduction Literature review Data vi Contents 3.4 Methodology and results 3.5 Conclusion References 43 47 48 A survey of the venture capital industry in Central and Eastern Europe Rachel A Campbell and Roman Kraeussl 51 4.1 Introduction 4.2 The route of transition and the current economic environment 4.3 Recent developments of VC funding in CEE 4.4 An action plan towards a well-functioning VC market 4.5 Conclusion References Appendix 51 52 54 62 64 65 67 Venture capital in European transition economies: A scoring system Robert W McGee 71 5.1 Introduction 5.2 Some factors to consider 5.3 Results 5.4 Conclusion References 71 72 78 81 82 Recommendations for the development of a European venture capital regulatory corpus: Lessons from the U.S Edward J Lusk, Gregor Schmidt, and Michael Halperin 85 6.1 6.2 Introduction Wealth creation: the final launch price and its market implications 6.3 A study of strategic price setting from the U.S 6.4 Results 6.5 Summary of the U.S study 6.6 Recommendations and conclusion References Part Two Evaluation, Exit Strategies, and Theoretical Aspects 85 86 88 89 93 93 96 99 Productivity growth in Spanish venture-backed firms Luisa Alemany and José Martí 101 7.1 Introduction 7.2 Literature review and hypotheses 7.3 Data and methodology 7.4 Results 7.5 Conclusion References 101 102 105 109 112 113 Contents 10 11 vii Is the Spanish public sector effective in backing venture capital? Marina Balboa, José Martí, and Nina Zieling 115 8.1 Introduction 8.2 The role of venture capital 8.3 Data and descriptive analysis 8.4 Methodology 8.5 Results 8.6 Conclusion References 115 116 118 122 123 124 126 A review of the venture capital industry in Italy Fabio Bertoni, Massimo G Colombo, Annalisa Croce, and Evila Piva 129 9.1 Introduction 9.2 Venture capital in Italy: the supply side 9.3 Venture capital in Italy: the demand side 9.4 The effect of venture capital on NTBF performance 9.5 Public policy in support of the venture capital industry 9.6 Conclusion References 129 131 135 138 139 140 141 Exit strategy and the intensity of exit-directed activities among venture capital-backed entrepreneurs in Sweden Anders Isaksson 143 10.1 Introduction 10.2 Research framework 10.3 Data collection 10.4 Results and discussion 10.5 Conclusion References 143 145 149 151 154 155 Private equity fund managers not overvalue their company investments Tom Weidig, Andreas Kemmerer, Tadeusz Lutoborski, and Mark Wahrenburg 157 11.1 Introduction 11.2 Valuation guidelines 11.3 Literature review 11.4 Data sample 11.5 Empirical findings 11.6 Conclusion References Appendix 157 158 158 160 161 166 167 168 viii 12 Contents A search model of venture capital, entrepreneurship, and unemployment Robin Boadway, Oana Secrieru, and Marianne Vigneault 171 12.1 Introduction 12.2 The model 12.3 The social optimum 12.4 Optimal policy 12.5 Conclusion References Appendix 171 172 177 179 181 182 184 Part Three Financing and Contracting 13 14 15 185 Capital structure in new technology-based firms: Venture capital-backed versus non-venture capital-backed firms in the Irish software sector Teresa Hogan and Elaine Hutson 187 13.1 Introduction 13.2 Theoretical background and testable implications 13.3 Survey and sample characteristics 13.4 Capital structure 13.5 Founders’ perceptions of information asymmetries 13.6 Conclusion References 187 188 190 192 194 196 197 German business ventures – entrepreneurs, success factors, and financing Ann-Kristin Achleitner, Christoph Kaserer, Niklas Wagner, Angela Poech, and Martin Brixner 199 14.1 Introduction 14.2 Research set-up 14.3 Results 14.4 Conclusion References 199 200 202 214 215 Financing practices in the German venture capital industry: An empirical study Andreas Bascha and Uwe Walz 217 15.1 Introduction 15.2 Theoretical background 15.3 The data 15.4 Descriptive analysis 15.5 Does theory match with practice? 15.6 Conclusion References 217 218 221 221 224 228 229 Contents 16 17 ix Covenants in venture capital contracts: Theory and empirical evidence from the German capital market Ron C Antonczyk, Wolfgang Breuer, and Klaus Mark 233 16.1 Introduction 16.2 Venture capital, agency problems, and hold-up 16.3 Incentive instruments in venture capital financing relationships 16.4 Empirical data 16.5 Contract design and characteristics of portfolio firms 16.6 Conclusion References 233 234 236 237 241 245 246 Supply and demand of venture capital for biotech firms: The case of the Belgian regions of Wallonia and Brussels Véronique Bastin, Georges Hübner, Pierre-Armand Michel, and Mélanie Servais 17.1 Introduction 17.2 Context 17.3 Venture capital in Belgium 17.4 Methodology 17.5 Literature: relevant dimensions 17.6 Empirical material 17.7 Analysis of perceptions 17.8 Conclusion References Part Four 18 19 Performance 249 249 251 251 252 255 258 266 270 272 275 Simple and cross-efficiency of European venture capital firms using data envelopment analysis Greg N Gregoriou, Maher Kooli, Philipp Krohmer, and Rainer Lauterbach 277 18.1 Introduction 18.2 Background 18.3 Methodology 18.4 Data 18.5 Empirical results 18.6 Conclusion References 277 278 280 284 288 293 293 Agency theory and management buy-out: The role of venture capitalists Hans Bruining and Arthur Herst 297 19.1 19.2 19.3 297 298 302 Introduction Agency theory Management buy-out This page intentionally left blank Index Abnormal returns: buy-and-hold abnormal returns, 353–60 lock-up considerations, 90–6, 345, 346–9 Accounting standards, 86 Acquisitions, 3–4, 5, 60, 144–54, 220, 223–9, 257–8, 260, 265–72, 313–28 concepts, 3–4, 145–6, 223–4 start-ups, 3–4, see also Exit strategies; Takeovers Action plans, Central and Eastern Europe, 62–5 Active Capital, 13 Adaptability channel, legal systems, 35–47 Adverse selection, 189, 314–15, 328 Agency theory, 188–9, 217–29, 233–46, 297–309, 315–16, 328, 331–2, 375 concepts, 219, 297–309, 315–16, 328, 331–2, 375 contractual provisions, 234–46, 375 control measures, 219, 301–8, 315–16, 375 critique, 302 debt finance, 301–2, 306–8 equity finance, 301–2, 306–8, 315–16 financial securities, 217–29 founders, 299–300 historical background, 298–300 information asymmetries, 188–9, 218–19, 234–46, 297–309, 375 key concepts, 300–301 literature, 298–9 management buy-outs (MBOs), 297–8, 302–8 mechanisms, 219, 301–8 monitoring costs, 299–300, 315–16, 375 positioning, 298–9 problem types, 219 rapid repayment of debt, 307 see also Moral hazard AIFI, 349–50, 357–8 AIM, 10, 312 Albania, 74–81 Alliances, mergers and acquisitions, Belgium, 257–8, 260, 265–72 AMEX, 9, 89 Angel Capital Electronic Network (ACE-Net) see Active Capital ANOVA analysis, 324–8 Anti-dilution rights, 234, 237–46 Apple Computers, 312 Armenia, 74–81 Asia, 14, 102 Assets: types, 12, 195–6, 316 see also Intangible ; Intellectual property rights Auctions, IPO pricing biases, 94–5 Austria, statistics, 6–7, 37, 39, 285–91, 347–51 Bankruptcies, 12–13, 146, 218–19 Europe/US gap, 12–13 laws, 12–13 Banks, 11, 19–20, 52, 54, 59, 129–40, 147–54, 182, 187–97, 211–15, 254–5, 311–12, 314–15, 331–40, 365–9 entrepreneurs, 194–7, 211–15 Germany, 331–40 IPOs, 332–40 search model, 182 venture capitalists, 331–40 Basic efficiency, data envelopment analysis (DEA), 281–93 Belarus, 74–81 Belgium, 5–7, 9, 20–30, 37, 39, 104, 115, 117, 249–74, 285–91, 303–5 alliances, mergers and acquisitions, 257–8, 260, 265–72 background, 5–7, 9, 20–30, 249–74, 285–91, 303–5 biotech firms, 249–72 Brussels region, 249–72 business plans, 249–50, 257, 260, 264–72 buy-outs, 303–5 competition, 256, 262–72 demand-side VC perspectives, 250–72 economic environment, 255–6, 261–72 employment, 253–72 information disclosure, 256–7, 259, 263–72 intellectual property rights, 256–7, 259, 263–72 390 Belgium (Continued) Lisbon agenda, 249–50 management quality, 255–6, 258–72 pipeline of products, 256, 262–72 public VC, 20–30, 254–5 regulatory environment, 255–6, 261–72 risk/return perceptions, 249–50, 257–72 scientific quality, 255–6, 258–72 sectoral distributions, 253–5 statistics, 5–7, 20–30, 37, 39, 117, 249–74, 285–91, 303–5 stock markets, supply-side VC perspectives, 250–72 valuations, 257, 260, 265–72 Wallonia region, 249–72 Benchmarking, 265 Biotech firms: Belgium, 249–72 concepts, 104, 249–72 hindrances, 250 risk, 250, 257–72 Biotechnology, 104, 249–72 Blockholder control, 350–51 Bondholders: agency theory, 306–8 shareholders, 306–8 see also Debt finance Bonding mechanisms, agency theory, 301–8 Bookbuilding roadshows, IPOs, 94–5 Bosnia & Herzegovina, 74–81 Bounded rationality, 299 Brussels region, Belgium, 249–72 Bulgaria, 52–70, 74–81 Business angels, 20, 192–4, 211–15, 254–5 Business consultants, Germany, 211–14 Business plans, Belgian biotech firms, 249–50, 257, 260, 264–72 Businesses: communications, 313–28 family-owned firms, 345–60 legal systems, 33–49 life-cycle, 3–4, 313–28 venture capitalists, 171–82, 194–7, 199–215, 217–29, 233–46, 250–72, 311–28 write-offs, 8, 144, 372–6 see also Entrepreneurs; Start-ups Buy-and-hold abnormal returns (BHAR), Italian IPOs, 353–60 Buy-backs, 144, 146–54, 220, 223–9 concepts, 146 see also Exit strategies Buy-ins, 23, 303–8, 335–40 Index Buy-outs, 23, 57–9, 67–9, 130, 132–3, 284–5, 297–8, 302–8, 316–28, 335–40 agency theory, 297–8, 302–8 statistics, 303–8 types, 297–8 see also Later-stage transactions; Management buy-outs Canada, 104, 115, 145, 160, 222 CAPCOs see Certified Capital Companies Capital Dynamics, 364 Capital gains taxes, 11, 179–81 Capital markets, 8–9, 19, 33–49, 51–70, 71–81, 85–96, 187–97, 233–46, 331, 365–9 Central and Eastern Europe, 52–70, 71–81 covenants in venture capital contracts, 233–46, 331 Europe/US gap, 8–9, 188–9 legal systems, 33–49 securitization, 365–9 see also Stock markets Capital productivity: concepts, 102–12 see also Productivity Capital structures: concepts, 188–97, 217–29, 238–9, 314–28, 365–9 Irish NTBFs, 187–97, 314–28 Modigliani and Miller irrelevance theory, 218 theories, 188–9, 218–19, 314–28 Captive organizational structures, 147–54, 331–2 Carried interest, 333 Cash-flow information, fund manager valuations, 158–65 CDOs see Collateralized Debt Obligations CEE see Central and Eastern Europe Celtic tiger era, Ireland, 311–12 Central and Eastern Europe (CEE), 13, 51–70, 71–83 action plans, 62–5 background, 51–70, 71–83 barriers to foreign investors, 74–8, 79–81 capital markets, 52–70, 71–81 communist rule, 13, 51–4, 71–2, 76–7 countries’ list, 52, 72–8 economic environment, 52–4, 62–3, 71–81 employment rigidity, 77–81 entrepreneurial culture, 64 EU enlargement, 51–2 exit routes, 60–5 financial systems, 52–4, 73–81 financing, 51–65, 71–81 freedom rankings, 73–5, 78–82 fund managers, 60 Index fundraising activity, 55–65 GDP statistics, 52–4, 57 inflation statistics, 52–4 investment activity, 56–65, 71–81 investor types, 59–60, 74–8 privatizations, 52–4 public policies, 62–5 recent funding developments, 54–62 regulations, 60–5, 72–81 scoring system, 71–81 sectoral distributions, 57–65 statistics, 52–70, 72–81 successful VC-backed companies, 67–9 tax incentives, 61–2, 63–4, 72–3, 77–81 see also Europe Centre for Management Buy-out Research (CMBOR), 303 Centre of Private Equity Research (CEPRES), 284, 371–2, 375–6 Certified Capital Companies (CAPCOs), 11 CESR see Committee of European Securities Regulators Chapter 11 bankruptcy protection, US, 12 China, 102–3 Civil law, 34–47 see also Legal systems Clearstream Technology, 312 Closed-ended funds, 131–40, 224–9, 331–2, 333, 345–60 CMBOR see Centre for Management Buy-out Research Cohen’s d, 160, 165 Collateralized Debt Obligations (CDOs), 364–7 Collateralized Private Equity Obligations (CPOs), 364–7 Commercial law, 34–5 Committee of European Securities Regulators (CESR), 86 Common law, 34–47 Communications, investee life-cycle perceptions of VC, 313–28 Communist rule, Central and Eastern Europe, 13, 51–4, 71–2, 76–7 Company law, 34–5 see also Legal systems Comparative studies, review, 8–9, 34–6 Compensation, 299–300 Competition clauses, covenants in contracts, 234–46 Considerations of Special Note (CSN), US study, 93–6 Consumer Price Index (CPI), 284 391 Contracts: agency theory, 301–8, 375 covenants, 233–46, 331 design issues, 241–6 enforcement, 39–47 Control measures, agency theory, 219, 301–8, 315–16, 328, 375 Control rights, venture capital contracts, 234–46 Convertible securities: concepts, 8, 217–29, 238–9 statistics, 219 uses, 219–20, 238 Copyright systems, 12 see also Intellectual property rights Corporate governance, 15, 86, 93–4, 334–40 Correlation analysis, 43–7 Corruption, 13–14, 73–4, 80 Council of Europe Bank, 54 Covariance, 225–7, 376–83 Covenants, venture capital contracts, 233–46, 331 CPI see Consumer Price Index CPOs see Collateralized Private Equity Obligations Credit Suisse, 87 Credit-tranching, concepts, 367–70 Creditors: banks as VCs, 331–40 legal systems, 33–47 Croatia, 74–81 Cross-efficiency model: concepts, 281, 282–4 data envelopment analysis (DEA), 281–93 CSN see Considerations of Special Note Cultural issues, 8–9, 13, 14, 51–4, 380, 385–6 Cyprus, 36–9 Czech Republic, 52–70, 74–81, 285–91 Data envelopment analysis (DEA): basic efficiency, 281–93 concepts, 277–93 cross-efficiency model, 281–93 data, 284–93 empirical results, 288–93 historical background, 278 methodology, 280–1 model types, 181–2 DCF see Discounted cash flow DEA see Data envelopment analysis Debt finance, 11, 19–20, 52–4, 70, 129–41, 147–54, 182, 187–97, 211–15, 217–29, 234–46, 284–5, 301–28, 365–9 392 Debt finance (Continued) agency theory, 301–2, 306–8 capital structures, 188–97, 217–29, 238–9, 314–28, 365–9 information asymmetries, 188–9, 218–19 rapid repayment, 307 see also Loans Debt–equity mixes, Germany, 217–29 Decision control, concepts, 301–8 Decision making: agency theory, 300–308 stages, 301–2 Decision making units (DMUs), data envelopment analysis (DEA), 280–81 Decision management, concepts, 301–8 Default risk, 371–86 Delegation concepts, agency theory, 300–308 Denmark: buy-outs, 303–5 statistics, 6–7, 22, 37, 39, 76–7, 289–91, 303–5, 347 Direct support, government intervention, 10–11, 19–30, 148–9 Discounted cash flow (DCF), 265 Disinvestment, valuation factors, 165–6 Diversification, risk, 386 Divestments, 60–1, 109, 129–40, 305–8 Central and Eastern Europe, 60–61 concepts, 305–8 Italy, 129–40 Spain, 109 see also Management buy-outs DMUs see Decision making units Dormant holdings, 238–9 Drag-along rights, contracts, 239–46 Due diligence, 386 Early-stage funds, 3–17, 21–30, 57–9, 68–9, 71–2, 104, 117–18, 129–40, 223–4, 241–6, 313–28, 335–40, 376–86 see also Entrepreneurs; Expansion ; Seed ; Start-ups EASDAQ see European Association of Securities Dealers Automated Quotation Eastern Europe see Central and Eastern Europe EBRD see European Bank for Reconstruction and Development EC see European Commission ECB see European Central Bank Economic effects: valuations, 159 VC industry, 10–14, 19–21, 23–30, 33–49, 51–2, 62–3, 71–81, 101–12, 115–26, 187–8, 217–18, 279–93, 311–13 Index Effect size, valuations, 160, 165, 166, 168–9 Efficiency issues: basic efficiency, 281–93 concepts, 277–93 cross-efficiency model, 281, 282–4 data envelopment analysis (DEA), 277–93 see also Performance EIB see European Investment Bank Emerging markets, 14 see also Asia Employee buy-outs, 298–9, 303–8 see also Buy-outs Employment: Belgium, 253–72 Central and Eastern Europe, 77–81 Germany, 202–15 Irish NTBFs, 190–7 productivity growth, 103–5 search model, 171–82 Spanish VC productivity growth, 101–12 stock options, 11, 14 taxes, 179–81 VC industry, 10–14, 19–21, 51–4, 77–81, 101–12, 115–26, 190–7, 235–6, 298–9, 303–8 workers/entrepreneurs occupational choice, 172, 176, 181–2 see also Economic effects Enforcement of contracts, 39–47 English common law, 34–47 see also UK Enterprise Ireland, 316 Entrepreneurs, 3–17, 19–30, 62–5, 171–82, 194–7, 199–215, 217–29, 233–46, 311–28 academic backgrounds, 202–4, 211, 214 age ranges, 202–4 agency theory, 188–9, 217–29, 233–46, 297–309, 315–16, 328, 331–2, 375 background, 3–17, 171–82, 194–7, 199–215, 233–46, 311–28 banks, 194–7, 211–15 biotech firms, 249–72 characteristics, 199–215, 241–6 choice of labour, 174 covenants in contracts, 233–46, 331 employment backgrounds, 202–11 Europe/US gap, 3–17 females, 205–11 hold-up problems, 233–46 incentive instruments, 234–46 information asymmetries, 194–7, 218–19, 234–46, 297–309, 375 investee life-cycle perceptions of VC, 313–28 Nash bargaining, 175–7, 184 Index risk attitudes, 202–4, 227–8 search model, 171–82, 199 venture capitalists, 171–82, 194–7, 199–215, 217–29, 233–46, 250–72, 311–28 workers/entrepreneurs occupational choice, 172, 176, 181–2 see also Early-stage funds; Innovations Entry Standard, Frankfurt Stock Exchange, 10 Equity finance, 4, 9–12, 19–20, 27–30, 39–47, 52, 70, 137–41, 187–97, 211–29, 301–2, 306–8, 311–28, 365–9 agency theory, 301–2, 306–8, 315–16 capital structure in Irish NTBFs, 187–97, 314–28 capital structures, 188–97, 217–29, 238–9, 314–28, 365–9 see also Stock markets Equity held by the family (EQfam), Italian IPOs, 353–60 Estonia, 52–70, 74–81 EURO Neuer Markt (EURO.NM), 9–10, 14, 335–6 Europe: bankruptcy laws, 12–13 buy-outs, 298–9, 303–8 cultural issues, 8–9, 14, 380, 385–6 economic effects, 10–14, 19–21, 23–30, 33–49, 51–4, 62–3, 71–81, 101–12, 115–26, 187–8, 217–18, 279–93, 311–13 government intervention, 10–14, 19–30, 39–47, 115–28, 139–40, 147–54, 179–81, 188, 192–3, 196, 221–9, 254–72 intellectual property rights, 12, 14, 72–3, 104, 256–72 legal systems, 33–49, 380 performance issues, 3–17, 101–12, 116–26, 138–9, 277–80, 286–93 productivity growth, 101–12 public venture capital, 10–11, 19–30, 62–5, 105, 115–28, 131–3, 139–40, 144–5, 147–54, 221–9, 254–5, 331–2 small-company stock markets, 9–10 statistics, 4–15, 19–30, 36–47, 277–93, 303–8, 312, 342–58, 365–6, 375–86 tax incentives, 11, 14, 20, 21, 30, 61–2, 63–4, 72–3, 77–81 total loss risk, 369–84 US recommendations for a regulatory corpus, 93–6 US VC gap, 3–17, 19–20, 101–3, 188–9, 279–80, 371–86 see also Central and Eastern ; Individual countries 393 European Association of Securities Dealers Automated Quotation (EASDAQ), 9–10 see also NASDAQ Europe European Bank for Reconstruction and Development (EBRD), 54, 72 European Central Bank (ECB), 54 European Commission (EC), 21, 54, 103, 125 European Investment Bank (EIB), 54 European Investment Fund, 20, 124–5 European Private Equity and Venture Capital Association (EVCA), 8, 15, 20–1, 23, 51, 54–9, 132, 148, 158, 161, 251–2, 277–8, 365–6 EVCA see European Private Equity and Venture Capital Association Exit prices, valuations, 163–6 Exit strategies, 3–4, 8–9, 14, 60–5, 90, 130, 143–54, 220, 222–4, 332–40 agency problems, 220 Central and Eastern Europe, 60–5 concepts, 3–4, 8–9, 14, 60, 143–54, 220, 222–4, 332, 333–40 Europe/US gap, 3–4, 8–9, 14 exit-directed activities, 153–4 IPOs, 4, 8, 90, 130, 143–54, 220, 223–9, 332–40 Sweden, 143–54 timing issues, 143–54, 332, 333–40, 345–51 types, 4, 8–9, 14, 60, 143–54, 220, 222–4 value-added, 143–4 Exit-directed activities, 143–54 concepts, 146–54 exit strategies, 153–4 types, 146–7 Expansion companies, 22–30, 57–9, 67–9, 71–2, 132–40, 223–9, 316–28, 335–40, 376–86 see also Early-stage ; Later-stage Experience factors, valuations, 159–60 Expertise, 8–9, 202–4, 374–86 Failures, total loss risk, 371–86 Fair market prices, 96, 158–66 Family-owned firms, 345–60 FDI see Foreign direct investment Female entrepreneurs, 205–11 Financial development, legal systems, 33–49, 365–9 Financial securities, Germany, 217–29 Financing, 3–5, 19–20, 33–49, 51–65, 71–81, 104–12, 119–40, 147–54, 187–229, 234–46, 277–8, 311–28, 332–40, 345–60, 365–9 394 Financing (Continued) concepts, 3–5, 19–20, 33–49, 187–97, 199–215, 217–29, 234–46, 277–8, 311–13, 365–9 hierarchy, 196–7 securitization, 365–9 see also Capital ; Debt ; Equity ; Venture Finland: buy-outs, 303–5 public VC, 20–30 statistics, 6–7, 20–30, 37, 39, 303–5, 347 Fixed assets, 195–6, 316 Foreign direct investment (FDI), 52, 71–5 Founders: agency theory, 299–300 information asymmetries, 194–7 see also Entrepreneurs France, 5–7, 9, 12, 20–30, 33–47, 103, 125, 133, 285–91, 303–5, 345–9 bankruptcy laws, 12 buy-outs, 303–5 civil law, 34–47 IRR, 286–93 legal system, 33–47 performance issues, 103, 285–91 productivity growth, 103 public VC, 20–30 statistics, 5–7, 36–47, 133, 285–91, 303–5, 345–9 stock markets, Frankfurt Stock Exchange, 10 Freedom rankings, Central and Eastern Europe, 73–5, 78–82 Fund of funds, 277–8, 365–86 Fund managers: background, 60, 86–96, 157–66, 219–20, 371–86 Central and Eastern Europe, 60 IPOs, 86–96 reports, 157–8, 160–5 syndicates, 8, 372–86 valuation behaviour, 157–66 Fund size, data envelopment analysis (DEA), 279–93 Gaming, 86–7, 93–5 GDP, 5, 7, 23–8, 42, 47, 52–4, 57, 119–20, 123–5, 131–2, 177–8, 312, 344 GEM see Global Entrepreneurship Monitor Generalist investors, Belgium, 270–2 Georgia, 74–81 Index Germany, 5–7, 9–10, 20–2, 34–47, 103–4, 115, 125, 133, 199–215, 217–31, 233–46, 283–91, 331–40, 344–51 background, 5–7, 9–10, 20–2, 34–47, 199–215, 217–29, 233–46, 283–91, 331–40, 344–51 banks, 331–40 covenants in VC contracts, 233–46, 331 employment, 202–15 entrepreneurs, 199–215, 217–29, 233–46, 331–40 family-owned firms, 342–9 female entrepreneurs, 205–11 financial securities, 217–29 financing, 199–200, 211–15, 217–29, 234–46, 331–40 funding vehicles, 238–46, 331–40 innovations, 199–200, 205–15 IRR, 286–93 legal system, 34–47 performance issues, 103, 104, 286–93 productivity growth, 103, 104 public VC, 20–2, 221–9, 331–2 public-private partnership agencies, 217–29 reunification, 332–3 sectoral distributions, 200–2 silent partnerships, 217–29 statistics, 5–7, 20–2, 36–47, 133, 200–15, 219–29, 237–46, 283–91, 335–40, 342–9 stock markets, 9–10 success factors, 199–200, 205–15 Global Entrepreneurship Monitor (GEM), 199, 202 Goal conflicts, agency theory, 297–309 Government intervention, 10–14, 19–30, 39–47, 115–28, 139–40, 147–54, 179–81, 188, 192–3, 196, 221–9, 254–72 bankruptcy laws, 12–13 direct support, 10–11, 19–30, 148–9 Europe/US gap, 10–14 infrastructural investments, 12 local support, 13 socially optimal policy, 179–81 subsidies, 20, 39–47, 181, 188, 192–3 see also Public venture capital; Regulations; Tax Greece, statistics, 6–7, 22, 36–9, 285–91 Guarantee schemes, 20, 21, 30, 125 Hedging, 367, 384 Heteroskedasticity, 378 Heuristics, 371–2, 374 Hidden action, contractual provisions, 234–46 Index Hidden information, contractual provisions, 234–46 High Technology Fund, UK, 125 Hold-up problems, concepts, 233–46 Homoskedasticity, 378 Hot issue markets, 349 Human capital, 104, 235–46 see also Employment; Intellectual property Human Rights Campaign, 94 Hungary, 52–70, 72–81, 285–91 Hybrid contracting, 299–308 Iceland, 36–8, 285–91 IEF see Index of Economic Freedom IMF see International Monetary Fund Immigration rates, Spain, 103 Incentive instruments, financing relationships, 234–5, 236–46 Index of Economic Freedom (IEF), 73, 78–80 India, 103 Inflation, 52–4, 284, 371 Information asymmetries, 86–7, 94, 159–60, 187–97, 218–19, 234–46, 256–72, 297–309, 375 agency theory, 188–9, 218–19, 234–46, 297–309, 375 capital structures, 188–9, 218–19 debt finance, 188–9 entrepreneurs, 194–7, 218–19, 234–46, 297–309, 375 Information costs, 218–19 Infrastructural investments, government intervention, 12 Initial Public Offerings (IPOs), 4, 8, 10, 21, 34, 85–96, 117, 130, 143–54, 220, 223–9, 262, 266, 280, 312, 332–60 banks, 332–40 concepts, 85–96, 145–6, 220, 223–4, 280, 332–40, 345–60 family-owned firms, 345–60 overpricing/underpricing, 86–96 performance issues, 85–96, 280, 343–60 pricing, 85–96 reputational issues, 332, 333–4, 338–9 retention rates, 333–40 timing issues, 332–40, 345–51 see also Exit strategies Innovations, 19–20, 30, 51–2, 104–12, 115–26, 171–82, 187–97 degrees, 199–200, 205–15 success factors, 199–200, 205–15 see also Entrepreneurs INNOVEST, 94 395 Institutional investors, 9, 11, 20, 21, 277–8, 289–93, 331–2, 365–6, 373–5 Europe/US gap, 9, 11 see also Insurance companies; Investors; Pension funds Institutional structures, 5, 21, 34–47 Insurance companies, 11, 21, 59, 277–8, 331–2, 365–6 Intangible assets, 12, 14, 72–3, 104, 195–6, 233–46, 256–72, 316 Intellectual property rights, 12, 14, 72–3, 104, 233–46, 256–72 Belgium, 256–7, 259, 263–72 Europe/US gap, 12, 14 Internal finance, capital structure in Irish NTBFs, 187–97 Internal rate of return (IRR), 159–65, 277–80, 286–91 data envelopment analysis (DEA), 277–80, 286–91 statistics, 277–80, 286–91 see also Returns International Monetary Fund (IMF), 38, 54 Internet bubble, 130 Investments, 51–65, 71–81, 85–96, 105–12, 119–26, 157–66, 179–81, 277–8, 313–28, 371–86 Central and Eastern Europe, 51–65, 71–81 life-cycle perceptions of VC, 313–28 syndicates, 8, 372–86 taxes, 179–81 total loss risk, 371–86 types, 57–9, 105–9, 119–26, 277–8, 317–28 see also Valuations Investors, 11–13, 30, 59–65, 71–2, 85–96, 103–12, 131–41, 157–66, 199–215, 250–72, 277–8, 306–8, 342–60, 367–70, 373–5, 380 agency theory, 188–9, 217–29, 233–46, 297–309, 315–16, 328, 331–2, 375 biotech firms, 250–72 CPOs, 367–70 minority shareholders, 30 risk awareness, 380 types, 11, 30, 59–60, 71–2, 131–2, 211–15, 254–5, 270–2, 277–8, 331–2, 373–4 see also Financing; Institutional investors Iona Technology, 312 IPOs see Initial Public Offerings Ireland: background, 4–7, 22–30, 187–97, 285–91, 311–28 capital structure in Irish NTBFs, 187–97, 314–28 Celtic tiger era, 311–12 396 Ireland (Continued) investee life-cycle perceptions of VC, 313–28 performance issues, 285–91, 311–28 public VC, 22–30 statistics, 4–7, 22–30, 37, 39, 190–7, 285–91, 311–28 venture-backed/non-venture-backed capital structure, 187–97, 323–8 IRR see Internal rate of return Italy, 5–7, 9, 20–30, 37, 39, 101, 103, 104, 117, 129–41, 285–91, 303–5, 343–60 background, 5–7, 101, 103, 104, 129–41, 285–91, 303–5, 343–60 banks, 129–40 buy-outs, 303–5 demand-side VC perspectives, 135–41 divestments, 129–40 European comparisons, 133 external equity financing, 137–40 family-owned firms, 343–60 funding, 129–40, 345–60 historical background, 129–30 investment activity, 129–40 market developments, 129–30 new technology-based firms (NTBFs), 129–41 performance issues, 138–9, 285–91, 343–60 private equity, 130–41 productivity growth, 101, 103, 104 public policies, 139–40 public VC, 20–30, 131–3, 139–40 sectoral distributions, 136–40 statistics, 5–7, 37, 39, 101, 131–40, 285–91, 303–5, 344–60 stock markets, 9, 129–30, 343–60 supply-side VC perspectives, 130–5 Japan, productivity growth, 101–3 Judiciary independence proxies, financial development, 39–47 KfW see Kreditanstalt für Wiederaufbau KLD Research & Analytics, 94 Kreditanstalt für Wiederaufbau (KfW), 54, 125 Labor productivity: concepts, 102–12 see also Productivity Later-stage transactions, 22–30, 57–9, 67–9, 71–2, 130–41, 313–28, 335–40, 374–5, 376–86 see also Buy-outs; Expansion ; Replacement Latvia, 52–70, 74–81 Launch prices, IPOs, 85–96 Index Legal adaptability proxies, financial development, 39–47 Legal systems: adaptability channel, 35–47 Central and Eastern Europe, 60–5, 72–81 financial development, 33–49 literature review, 34–6 political channel, 35–47 securitizations, 363–7 Legislation, 5, 33–49, 93–6, 139–40 see also Regulations Leveraged buy-outs, 298–9, 303–8 see also Buy-outs Life-cycle, businesses, 3–4, 313–28 Limited partners, 11 Limited recourse securities, 367 Liquid markets: Europe/US gap, 8–9 see also Stock markets Liquidations, 146, 223–9 Liquidity: fund of funds, 368–9 valuation considerations, 157–66, 368–9 Lisbon Council, 19, 249–50 Listing regulations, 85–96 Literature, 8–9, 34–6, 102–5, 115–16, 158–60, 199–200, 255–8, 278–80, 298–9, 313–16, 346–9 Lithuania, 52–70, 74–81 Litigation risks, Europe/US gap, 13 Loans, 11, 19–20, 52–4, 70, 129–41, 147–54, 182, 187–97, 211–15, 311–12, 314–15, 366–9 see also Debt finance Local support, government intervention, 13 Lock-up considerations, 90–6, 158 London Stock Exchange, 93–4, 366 Losses, total loss risk, 371–86 Luxembourg, 22, 36–9, 285–91 M&As see Mergers and acquisitions Macedonia, 74–81 Macroeconomic effects: valuations, 159–60 see also Economic Management buy-outs (MBOs), 23, 57–9, 60, 67–9, 297–8, 302–8, 316–28, 335–40 agency theory, 297–8, 302–8 concepts, 297–8, 302–8 definition, 297–8, 302–3 shareholders, 302–3, 306–8 statistics, 303–8 types, 305 Index venture capitalists, 305–8 see also Divestments Managerial support, venture capitalists, 104–5, 115–16, 171–82, 313–28, 333–4, 378–86 Market equilibrium, search model, 176–7, 182 Market over-reactions, 349–50 Market-to-book ratios, 159–60, 336–40 MBOs see Management buy-outs Mean, 120–3, 150–4, 190–2, 286–93, 353–4, 378–85 Median valuations over fund life, fund managers, 162–3, 168–9 Meetings, investee life-cycle perceptions of VC, 313–28 Mergers and acquisitions (M&As), Belgium, 257–8, 260, 265–72 Mezzanine funds, 284–5, 365 Mibtel, 352–4 Minority shareholders, 30 Modigliani and Miller irrelevance theory, 218 Moldova, 74–81 ‘Moneychasing deals argument’, 159 Monitoring processes, 8, 299–300, 315–16, 375 Moral hazard, 86–7, 189, 219–20, 227–9, 235, 300–8, 328, 337–40 concepts, 300–308, 337–40 definition, 300–301 see also Agency theory MSCI Mid Cap Index, 352–4 Multiple of cost figures, data envelopment analysis (DEA), 286–93 Napoleon, 35 NASDAQ, 4, 9–10, 14, 60, 63, 85, 88–9, 312 NASDAQ Europe, 10 Nash bargaining, 175–7, 184 National Venture Capital Association (NVCA), 19, 20–1, 115 NAV see Net asset value Net present value (NPV), 87–8 Netherlands, 5–7, 9, 37, 39, 125, 285–91, 303–5, 365 buy-outs, 303–5 statistics, 5–7, 37, 39, 285–91, 303–5 stock markets, Neuer Markt, 9–10, 14, 335–6, 340 New technology-based firms (NTBFs), 129–41, 187–97, 376–86 capital structures, 187–97, 314–28 Italy, 129–41 397 Nexus of contracts, 299–308 Norway: public VC, 20–30 statistics, 6–7, 20–30, 37, 39 NPV see Net present value NTBS see New technology-based firms NVCA see National Venture Capital Association NYSE, 9, 85, 88–9 OECD see Organisation for Economic Co-operation and Development Operational risks, 386 OPIC see Overseas Private Investment Corporation Opportunist activity, exit-directed activities, 146–7 Organisation for Economic Co-operation and Development (OECD), 5, 23, 71, 85–6, 103–4, 108, 115, 253 Organizational structure: agency theory, 299–300 venture capitalists, 144–54 Organizational theory, concepts, 302 Orphan entities, securitization, 366–9 Overpricing/underpricing, IPOs, 86–96 Overseas Private Investment Corporation (OPIC), 10–11 Overvaluations/undervaluations, 157–66, 188–9 Pan-European funds, 131–2 Pareto efficiency, 177, 280–81 Partial exits, valuations, 163–6 Participating certificates, 222 Partners Group, 364 Patents, 12, 14 see also Intellectual property rights Path sketcher activity, exit-directed activities, 146–7 PE see Private equity Pecking-order hypothesis (POH), capital structures, 187–97 Pension funds, 5, 9, 11, 21, 59, 95, 158, 277–8, 293, 331–2, 365–6 Perfect competition, assumptions, 302 Performance issues, 3–17, 85–96, 101–12, 116–26, 138–9, 159–65, 277–93 comparative studies, 8–9 data envelopment analysis (DEA), 277–93 Europe, 3–17, 101–12, 116–26, 138–9, 277–80, 286–93 Europe/US gap, 3–17, 279–80 France, 103, 285–91 398 Performance issues (Continued) Germany, 103, 104, 286–93 IPOs, 85–96, 280, 343–60 Italy, 138–9, 285–91, 343–60 public/private VC comparisons, 20–30, 115–26, 149 relative performance, 3–17, 277–93 Spain, 101–14, 116–26, 285–91 statistics, 277–93 UK, 103, 285–91 US, 3–17, 85–96, 101–3 valuations, 159–65, 316–28 value-added, 102–5, 109–12, 143–4, 265, 321–8, 334–40 venture capitalists, 323–8, 334–40 see also Efficiency ; Productivity ; Returns Plan Innovation, France, 125 PMC see Projected marginal cost PMVA see Projected marginal value added POH see Pecking-order hypothesis Poland, 52–70, 72–81, 285–91, 347 Policies: regulations, 4, 5, 10–14, 20, 62, 129–30, 139–40, 179–81, 196 socially optimal instruments, 179–81 Political channel, legal systems, 35–47 Portfolio firms: characteristics, 241–6 German financial securities, 217–29 Portfolios of private equity: total loss risk, 370–84 valuations, 157–66 Portugal, statistics, 6–7, 22, 37, 39, 289–91, 347 Predictability, risk, 265, 372–5 Preferred shares, 218–29 Pricing, 85–96, 157–66 auctions, 94–5 fair market prices, 96, 158–66 IPOs, 85–96 private equity fund managers, 157–66 Private equity (PE), 19–20, 23–8, 130–41, 157–66, 211–15, 251–2, 365–9, 371–86 Private independent organizational structures, 147–54 Private property rights, 35–47, 72–3 Private VC considerations, public venture capital, 20–30, 115–26, 149 Privatizations, Central and Eastern Europe, 52–4 Productivity: concepts, 102–5 employment, 103–5 Europe, 101–12 Europe/US/Japan gap, 101–3 Index measurement purposes, 102–3 ratios, 102–3, 109–12 Spain, 101–12 statistics, 101–12 Prohibition of sale, covenants in contracts, 234–46 Projected marginal cost (PMC), 144 Projected marginal value added (PMVA), 143–4 Property rights, 35–47, 72–3 Prospect Theory, 87–8 Public venture capital, 10–11, 19–30, 62–5, 105, 115–28, 131–3, 139–40, 144–5, 147–54, 221–9, 254–5, 331–2 15-year historical perspective, 19–30 background, 10–11, 19–30, 115–26, 131–3, 139–40, 147–54, 221–9 Central and Eastern Europe, 62–5 evolution, 23–30 hypotheses, 21–2 multivariate analyses, 27–9 private VC considerations, 20–30, 115–26, 149 statistics, 20–30, 118–26, 131–3, 139–40 types, 20 see also Government intervention Public-private partnership agencies, Germany, 217–29 R&D see Research and development Real options, 265 Reconstructions, 146 Redemption rights, contracts, 239–46 Regional technology clusters, 115–26 Regression analysis, 43–7, 202, 241–6, 280, 338–9, 341, 356–60, 377–86 Regulations, 4, 5, 10–14, 20, 33–49, 60–5, 72–81, 85–96, 129–30, 139–40, 149, 255–72, 279–93, 380 Central and Eastern Europe, 60–5, 72–81 changes, 5, 10–14, 60–5, 76–81, 129–30 IPOs, 85–96 listing regulations, 85–96 policies, 4, 5, 10–14, 20, 62, 129–30, 139–40, 179–81, 196 recommendations for a regulatory corpus, 93–6 see also Government intervention; Legislation Relative performance, 3–17, 277–93 Replacement capital, 23, 57–9, 132–3, 316–28 see also Later-stage transactions Reporting standards, 14–15, 86 Reports, fund managers, 157–8, 160–5 Reputational issues: agency costs, 300–303 bankruptcy, 13 IPOs, 333–4, 338–9 Index Research and development (R&D), 10, 19–20, 30, 195–6, 250, 256–72 Restructured firms, bankruptcy laws, 12 Retained profits, 190–3, 316 Retention rates, IPOs, 333–40 Returns: abnormal returns, 90–6, 343, 346–9, 353–60 Europe/US gap, 4, 8, 279–80 exit strategies, 3–4, 90 IPOs, 89–96 IRR, 159–65, 277–80, 286–91 overpricing correlation, 92–3 risk, 71–2, 85–96, 159–60, 249–50, 257–72, 279–93, 316–28, 369, 373–86 statistics, 4, 27–9, 159–65, 277–80, 286–91 see also Performance issues Reward systems, agency theory, 301–8, 331–2 Right of first refusal, contracts, 239–46 Risk: attitudes, 202–4, 227–8, 297–309, 331–40, 372–86 biotech firms, 250, 257–72 default risk, 371–86 diversification, 386 Europe/US contrasts, 371–86 hedging, 369, 386 measures, 371–5 predictability, 265, 372–5 returns, 71–2, 85–96, 159–60, 249–50, 257–72, 279–93, 316–28, 369, 373–86 stage financing, 233–5, 237–46, 372, 375, 385–6 syndicates, 8, 372–86 total loss risk, 371–86 Risk aversion, 297–309, 331–40, 372–86 RITA database, 130, 135–7 Rock, Arthur, 312 Romania, 52–70, 74–81, 285–91 Russia, 73–81 SABI, 119 Sales/employee productivity ratio, Spain, 109–12 Sales/personnel costs productivity ratio, Spain, 109–12 Sales/total assets productivity ratio, Spain, 109–12 Sarbanes-Oxley Act 2002, US, 93–4 SBA see Small Business Administration SBIR see Small Business Innovation Research Scandals, 14 Scandinavia: civil law, 34–47 IRR, 286–93 399 performance issues, 285–91 see also Individual countries Scoring system, Central and Eastern Europe, 71–81 SDC see Security Data Company Search model: banks, 182 choices, 172–7, 181–2 concepts, 171–82, 199 market equilibrium, 176–7, 182 Nash bargaining, 175–7, 184 optimal policy, 179–81 socially optimal level, 171, 177–82 venture capitalists, 171–82 Secondary sales, 144–54 concepts, 146 see also Exit strategies Securitization, concepts, 363–7 Security Data Company (SDC), VentureXpert database, 5, 33–4, 36–8, 88 Seed companies, 22–30, 57–9, 129, 132–40, 250, 316–28, 335–40 Central and Eastern Europe, 57–9 public VC statistics, 22–30 see also Early-stage funds Selection bias, 221–3, 253–4, 318 Self-interests, 297–309 Semi-structured interviews, 252–7 Serbia & Montenegro, 73–81 Shareholders: bondholders, 306–8 IPOs, 85–96 legal systems, 33–47, 129–30 lock-up considerations, 90–6 management buy-outs, 302–3, 306–8 minority shareholders, 30 preferred shares, 218–29 see also Investors SIC see Standard Industrial Classification Silent partnerships, Germany, 217–29 Silicon Valley, 116, 124–5 Singapore, 146 Slovakia, 52–70, 72–81 Slovenia, 52–70, 74–81 Small Business Administration (SBA), 13 Small Business Innovation Research (SBIR), 21, 117 Small and medium-sized enterprises (SMEs), 11, 20–1, 54, 124–6, 139–40, 188–90, 250, 317–28, 349–60 Small-company stock markets, 9–10 Small-firm effects, family-owned firms, 349–50 Smart money, 217–18 SME Finance Facility, EC, 54 400 SMEs see Small and medium-sized enterprises Social capital, 104–5 Socially optimal level, search model, 171, 177–82 Software sector, capital structure in Irish NTBFs, 190–7 Spain: background, 6–7, 37, 39, 101–12, 115–28, 285–91, 303–5, 344–51 buy-outs, 303–5 divestments, 109 employment, 103–4, 115–26 family-owned firms, 344-51 funding, 104–12, 119–26 immigration rates, 103 investments, 105–12, 119–26 non-venture-backed firms, 115–26 performance issues, 101–14, 116–26, 285–91 private/public VC comparisons, 115–26 productivity growth, 101–12 public venture capital, 115–28 regional factors, 115–26 sales/employee productivity ratio, 109–12 sales/personnel costs productivity ratio, 109–12 sales/total assets productivity ratio, 109–12 sectoral distributions, 105–12 statistics, 6–7, 37, 39, 101–12, 119–26, 285–91, 303–5, 344–51 VC origins, 105, 116 Specialist investors, Belgium, 270–2 Spinning practices, 87 Stage financing, venture capitalists, 233–5, 237–46, 372, 375, 385–6 Standard deviation, 120–3, 150–4, 168–9, 286–93, 353–4 Standard Industrial Classification (SIC), 88 Start-ups, 3–17, 21–30, 57–9, 68–9, 71–2, 104, 117–18, 129–40, 188–97, 200–15, 223–9, 241–6, 263–72, 312–13, 335–40 acquisitions, 3–4, Central and Eastern Europe, 57–9, 68–9 Europe VC gap, 3–17 public venture capital, 21–30 see also Businesses; Early-stage funds; Entrepreneurs State rights, 35 State-contingent payoff functions, 217–29 Static trade-off hypothesis, capital structures, 188–97 Stock markets, 4, 9–10, 12, 27–30, 39–47, 52, 60, 85–96, 129–30, 335–40, 343–60, 366 Europe/US gap, 4, 8–10, 12 small-company stock markets, 9–10 see also Capital markets; Liquid markets Index Stock options, Europe/US gap, 11, 14 Subsidies, 20, 39–47, 181, 188, 192–3 Subsidized business angels, 20 Supreme Courts, financial development, 39–47 Survey data, problems, 33–4 SVG Capital, 364 Swaps, 365 Sweden: background, 6–7, 20–30, 143–54, 303–5, 347, 365 buy-outs, 303–5 exit strategies, 143–54 exit-directed activities, 143–54 funding, 147–54 government intervention, 148–54 organizational structures, 144–54 public VC, 20–30, 144–5, 147–54 statistics, 6–7, 20–30, 37, 39, 145–54, 303–5, 347 Switzerland, statistics, 6–7, 37, 285–91, 347 Syndicates, 8, 370–84 Tag-along rights, contracts, 239–46 Taiwan, 72 Takeovers, see also Acquisitions Tax, 3, 5, 11–14, 20, 21, 30, 61–2, 63–4, 72–3, 77–81, 86–96, 139–40, 179–81, 214 Central and Eastern Europe, 61–2, 63–4, 72–3, 77–81 Europe/US gap, 11, 14 socially optimal policy, 179–81 types, 11, 179–81 Tax accountants, Germany, 211–14 Total loss risk: concepts, 371–86 dataset generation, 371–2, 375–7 definition, 372–3 determinants, 372–5 Europe/US contrasts, 371–86 model description, 377–8 results, 378–86 Total return swaps, 367 Total-loss–capital ratio, concepts, 371–86 Trade sales see Acquisitions Transaction costs, 299–308, 372–3 Transparency issues, 86, 93–4 Turkey, 345 UK, 4–10, 14, 20–30, 34–47, 93–4, 103, 125, 133, 285–91, 298–9, 303–8, 312, 345–9, 365–6 buy-outs, 298–9, 303–8 common law, 34–47 Index IRR, 286–93 legal systems, 34–47 performance issues, 103, 285–91 productivity growth, 103 public VC, 20–30 statistics, 4–7, 14, 20–30, 36–47, 133, 285–91, 303–8, 312, 345–9 stock markets, 9, 10, 93–4, 366 Ukraine, 74–81 Underpricing/overpricing, IPOs, 86–96 Underwriters, IPOs, 85–96 Unemployment, search model, 171–82 US: background, 3–17, 19–20, 85–96, 101–3, 112, 117, 124–5, 145, 160, 217, 238–40, 312, 348, 371–86 bankruptcy laws, 12–13 CAPCO legislation, 11 Chapter 11 bankruptcy protection, 12 cultural issues, 14, 380, 385–6 economic effects, 10–14 Europe VC gap, 3–17, 19–20, 101–3, 188–9, 279–80, 371–86 government intervention, 10–14, 117, 124–5 intellectual property rights, 12, 14 IPO pricing, 85–96 litigation risks, 13 performance issues, 3–17, 85–96, 101–3 productivity growth, 101–3 risk attitudes, 370–84 Sarbanes-Oxley Act 2002, 93–4 statistics, 4–15, 312, 348, 375–86 tax incentives, 11, 14 total loss risk, 369–84 Vacancies, search model, 173–82 Valuations: average/median valuations over fund life, 162–3, 168–9 concepts, 157–66, 168–9, 218–20, 236–46, 257, 260, 265–72, 316–28 effect size, 160, 165, 166, 168–9 exit prices, 163–6 experience factors, 159–60 guidelines, 158 liquidity considerations, 157–66 literature review, 158–60 macroeconomic effects, 159–60 methods, 265 overvaluations/undervaluations, 157–66, 188–9 partial exits, 163–6 performance issues, 159–65, 316–28 private equity, 157–66 401 reporting standards, 15 statistics, 160–5 write-downs, 158, 162–3 Value-added, 102–5, 109–12, 143–4, 265, 321–8, 334–40 exit strategies, 143–4 productivity measures, 102–5, 109–12 venture capitalists, 321–8, 334–40 Value-at-risk, 370 VC firms see Venture capitalists VC see Venture capital Venture capital (VC): Belgium, 5–7, 9, 20–30, 249–74 Central and Eastern Europe, 51–70, 71–81 comparative studies, 8–9 concepts, 3–17, 19–30, 33–49, 104–12, 116–18, 159–60, 171–82, 233–46, 314–28, 371–86 covenants in contracts, 233–46, 331 economic effects, 10–14, 19–21, 23–30, 33–49, 51–2, 62–3, 101–12, 115–26, 187–8, 217–18, 279–93, 311–13 employment, 10–14, 19–21, 51–4, 77–81, 101–12, 115–26, 190–7, 235–6, 298–9, 303–8 Europe/US gap, 3–17, 19–20, 188–9, 279–80, 371–86 Germany, 5–7, 9–10, 20–2, 34–47, 199–215, 217–29, 233–46, 331–40 historical background, 4–5, 112, 311–13 information asymmetries, 86–7, 94, 159–60, 187–97, 218–19, 234–46, 256–72, 297–309, 375 Ireland, 4–7, 22–30, 187–97, 311–28 Italy, 5–7, 20–30, 129–40, 285–91, 343–60 legal systems, 33–49 productivity growth, 104–12 recommendations for a regulatory corpus, 93–6 search model, 171–82 securitization, 365–9 Spain, 6–7, 101–12, 115–28 statistical comparisons, 4–10 statistics, 4–15, 19–30, 36–47 Sweden, 6–7, 20–30, 143–54 total loss risk, 369–84 see also Exit strategies; Public Venture capitalists, 104–5, 115–16, 130–41, 144–54, 171–82, 194–7, 199–215, 217–29, 233–46, 311–28, 331–40, 371–86 agency theory, 188–9, 217–29, 233–46, 297–309, 315–16, 328, 331–2, 375 banks, 331–40 402 Venture capitalists (Continued) biotech firms, 250–72 choice of advice, 174–5 choice of vacancies, 176 communications, 313–28 cost types, 173–4, 182 entrepreneurs, 171–82, 194–7, 199–215, 217–29, 233–46, 250–72, 311–28 hold-up problems, 233–46 incentive instruments, 234–46 investee life-cycle perceptions of VC, 313–28 investment proposals, 171–2 management buy-outs, 305–8, 316–28 meetings, 313–28 organizational structures, 144–54 performance issues, 323–8, 334–40 productivity contributions, 104–5 roles, 104, 115–16, 144–54, 171–82, 211–15, 217–20, 297–309, 311–28, 332–40, 371–86 search model, 171–82, 199 stage financing, 233–5, 237–46, 372, 375, 385–6 support, 104, 115–16, 171–82, 313–28, 333–4, 375–86 value-added, 321–8, 334–40 Index Venture Economics, 160, 280, 369–70, 375–6 VentureXpert database, 5, 33–4, 36–8, 88 Vesting provisions, venture capital contracts, 233–46 Veto rights, 234, 236–7, 239–46 Vienna Stock Exchange, 60 Virtuous capital cycle, 129 Vision, venture capitalists, 326–8 Volatility, 370 Wallonia region, Belgium, 249–72 Warsaw Stock Exchange, 60 WBES see World Business Environment Survey Wealth creation, IPO launch prices, 86–8, 89–96 Window-dressing problems, 220 ‘Windows of opportunity’, 349 World Bank, 5, 73, 77–8 World Business Environment Survey (WBES), 33–4 Write-downs, valuations, 158, 162–3 Write-offs, 8, 144, 372–86 total loss risk, 372–86 see also Exit strategies ... Advances in Portfolio Construction and Implementation Computational Finance Linear Factor Models in Finance Initial Public Offerings: an international perspective Venture Capital in Europe Series... German banks as venture capitalists Tereza Tykvová 331 21.1 21.2 21.3 331 332 Introduction Venture capital in Germany Duration of the venture capital financing and the venture capitalists’ retention... and business information technology His research at CEFS focuses on business venture financing, mezzanine financing, and corporate pension schemes Hans Bruining is Associate Professor in the